Why we need all sectors to contribute to a global transition to green
Looking at how much greenhouse gas (GHG) emissions we need to mitigate to reach the target set out in the Paris Agreement of limiting global warming to 2°C or lower, we need all sectors to contribute to the transition. Traditional ‘dirty’ sectors such as shipping, aviation, oil and gas have a pivotal role to play in transitioning to a low carbon economy. These sectors have the possibility to contribute important emission reductions and technological developments.
When developing our Shades of Green methodology, we reflected the underlying climate science that tells us that all sectors have to play a part in the transition. The Dark Green solutions take us into a truly low-carbon and climate resilient world, but the Light Green solutions on the other end of the spectrum represent important first-step contributions to emissions reductions that ultimately need to be deepened over time to reach our climate targets.
Real green transition in dirty sectors should realize significant emission reductions, but also guard against locking-in fossil-based infrastructure in the long run and deliver on building climate resilience. For a green bond issuer, this means having the governance structure in place to manage and reduce GHG emissions over time. CICERO Shades of Green second opinions provide transparency not only on the degree to which green projects are expected to contribute to the transition, but also provide a governance assessment to indicate the policies and follow-up measures in place to guide this transition going forward. Following our methodology, substantial efficiency improvements in the oil and gas sector that do not directly lead to increased oil and gas production could qualify as Light Green if the funded projects accelerate adoption of lower emission technology in other sectors.
The case of the recently published green bond framework from Teekay Shuttle Tankers LLC illustrates the role of the fossil fuel industry in the transition as well as a governance system that has the potential to manage emission reductions over time. Teekay provides a short-term solution for important efficiency improvements and supports accelerating lower emission shipping through innovation but does not provide a long-term solution to a low-carbon and climate resilient future.
In our Second Opinion (available at www.cicero.green) we highlight that Teekay’s development of E-Shuttles which reduce near-term emissions and represent a technological development that can play an important role in the shipping sector.
Substantial near-term emission reduction. E-Shuttles achieve an almost 50% GHG emission reduction from shipping operations (not counting emissions from construction of the ships and use of the oil transported). The risk of rebound effects is reduced as E-Shuttles directly replace older, conventional vessels of Teekay’s fleet servicing already committed field developments.
Technology contributions to a longer-term solution. Battery-LNG based technology can play an important role as a viable short-term solution for transitioning sectors such as long-haul shipping. The International Maritime Organization (IMO) set a target to reduce emissions from shipping by at least 50% from 2008 levels by 2050 – and switching to LNG alone is not enough to achieve this target. Advanced battery technology could be a complementary solution, which the E-Shuttles combine with LNG today. Further, by allowing competitors to utilize these innovations, spill-over effects to the rest of the shipping sector are possible.
Including clear transition cases within the scope of the green bond label allows us to have the conversations with some of the most important industries that need to be part of the transition. It also allows us to highlight how an issuer is moving towards a greener direction, rather than excluding them from the scale towards Dark Green that all sectors need to be moving along.
Addressing the urgency and scope of the climate change crisis requires all Shades of Green. Providing transparency on climate risk and contributions to the transition can support investors as they consider what level of transition to green fits within their mandate and risk level. The financial sector knows well how to price risk, and more granular information on transition projects like E-shuttles can support informed scrutiny of the associated climate risk. As noted in Mark Carney’s latest speech, mainstreaming sustainable investing requires a wide array of green.
 According to the projections of International Energy Agency (IEA) World Energy Outlook 2018