Climate Change, Carbon Pricing and Corporate Disclosure

26 mai 2017

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The Paris Accord proposes to regulate global carbon emissions and is premised on the belief that limiting the impact of climate change requires that the global average increase in temperature remain below 2°C, relative to pre-industrial levels. In Canada, the federal government has proposed to implement the Paris Accord principally through the pan-Canadian carbon price framework, which requires that each province implement its own carbon pricing regulations. These must be in place by January 1, 2018, with a mandatory minimum floor price of $10/tonne in 2018, rising to $50/tonne in 2022. As of January 1, 2017, each of Quebec, Ontario, Alberta and British Columbia have a carbon pricing regulatory framework in place, with the remaining provinces promising to follow suit prior to the January 1, 2018 federal deadline.

The proposed federal pricing will make Canada one of the highest carbon pricing jurisdictions globally. Still, doubt remains whether a carbon price of $50/tonne will be sufficient to allow Canada to meet its commitments under the Paris Accord and Canada is not alone in this regard. Many other countries could have difficulty implementing a carbon price sufficiently high enough to allow them to meet their commitments under the Paris Accord. All of this suggests that, absent a global shift in climate policy, we could well experience a steady increase in the price of carbon over the coming years. Suncor, for example, anticipates carbon prices will rise to $65/tonne by 2035.1

As carbon prices continue to increase, the importance of disclosure in this area becomes apparent. The Task Force on Climate-Related Financial Disclosures headed by Michael Bloomberg, in association with the Financial Stability Board, recently published a report (the “Bloomberg Report”) which concluded that the financial liabilities and future business risks associated with carbon emissions are becoming steadily more material. Accordingly, climate change disclosure is becoming essential in order to assess corporate risk and performance and in order to make informed and efficient capital-allocation decisions. Climate change disclosure, according to the Bloomberg Report, should focus on several key areas that represent the core elements of how organizations operate, including governance, strategy, risk management and should include specific metrics and targets. The Bloomberg Report suggests that such disclosure should be provided in mainstream public financial filings and should inform investors and other stakeholders on how an organization considers and assesses climate change related risks and opportunities.

To illustrate the financial consequences of climate change and carbon pricing, the CDP (formerly known as the Carbon Disclosure Project) recently released emissions data for some of the largest 500 companies globally. If, for the purposes of argument and illustration, one applies the anticipated Canadian $50/tonne 2022 floor price to these emissions, the results are significant. The most carbon intensive companies, which tend to be comprised of those in the oil and gas and steel manufacturing industries, emit upwards of 150 million tonnes of carbon annually, which would equate to an annual carbon liability of $7.5 billion. In Canada, where the most carbon intensive companies emit upwards of less than 20 million tonnes of carbon annually, the numbers are much smaller, equating to an annual carbon cost of nearly $1 billion. Of course, any potential annual carbon liability associated with a price on carbon may be reduced through, among others, exemptions, free allocations or a company’s ability to reduce its carbon output. Nevertheless, the annual carbon liability for some of the largest companies could become material going forward and merits careful and ongoing disclosure review.

As outlined in the Bloomberg Report, carbon pricing and climate change are anticipated to have a growing impact across a wide range of economic sectors. While carbon pricing and climate change disclosure is still in its infancy, companies have and will continue to make decisions based on their internal assessment of climate change related risks. A company’s stakeholders have a right to disclosure with respect to climate change issues, not only to foster efficient capital allocation, but in order to support the company’s effective transition into a low-carbon economy.

Suncor Energy. Suncor’s Climate Report: Resilience Through Strategy. 2016.

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