CLIMATE RISK & OPPORTUNITy

Temperatures in Canada are increasing at roughly double the global mean rate with northern Canada warming roughly three times faster than the average global temperature increase. Climate change will bring to Canada significant risks and opportunities from the physical impacts and the transition to a low-carbon economy. District energy systems are an important part of the community solution to mitigate and adapt to climate change.

HOW CLIMATE CHANGE WILL IMPACT COMMUNITIES

According to the Task Force on Climate-related Financial Disclosures (TCFD), there are two categories of climate risks:

1. Risks from the physical impacts of climate change
2. Risks from transition to a lower-carbon economy,

Canadian climate risks

Over the next 20 years in Canada, climate change impacts – receding ice cover, heatwaves, rising sea levels, wildfires, storm surges and other extreme weather events – could cause significant losses, damages, or disruptions to the food we eat, the water we drink, the roads we travel on, and the electricity that powers our modern lives. It will also upend the forests and ecosystems that we treasure and depend on for resources, our health, our communities. Even our politics and governance are at risk.

Urban environments climate risks

In the next 30 years, some 70 million people across the world will move to urban areas every single year. By 2050, two-thirds of the global population will live in cities. In Canada, across 10 provinces and 3 territories, 80% of Canadians live in urban areas. Modern urban life in Canada is heavily dependent on high-carbon sources of fossil-fuel based energy that can accelerate climate change. The high density of people, governments, businesses and infrastructure make urban areas vulnerable to climate change risks. That being said, highly dense communities also provide cities with the opportunity to become centres of climate resilience.

Impacts to the electricity sector

Physical risks may be acute (event-driven like floods) or chronic (long-term shifts like sea level rise and heat waves). According to the Canadian Standards Association, the Canadian electricity sector faces increasing acute physical risks of flooding, extreme weather, wind, and snow.

 Flooding

• Flooded installations – damage to equipment and danger of electrocution.
• Corrosion of steel transformers.
• Chances of landslides, erosion and infrastructure damage.
• Oil leaks and contamination during heavy rainfall.
• Structures washed away close to riverbanks.

Extreme weather

• Equipment damage causing delays to repair and response times.
• Electrical fires due to over-use of heaters.
• Shifting electricity demand due to varying temperatures resulting in increased load on the grid.
• Power outages due to lightning contact with transmission lines.

Wind and Snow

• Extreme winds can knock down trees, damaging electrical lines.
• Corrosion due to icy conditions.
• Ice accretion on towers can cause infrastructure damage.
• Electrical switches can freeze and stop working.

Transitional RiskS

As we transition to a lower-carbon and resilient economy, there will be changes to the political, legal, technological, and market landscape.

Policy Risk

Policies to advance adaptation and minimize the adverse effects of climate change will bring changes to markets. For example, a policy banning the sale of internal combustion engine automobiles will impact our infrastructure, the car industry and related industries.

Legal Risk

In recent years, there has been an increase in litigation claims by property owners, municipalities, states, insurers, shareholders, and public interest organizations. For example, claims have been made against organizations that fail to mitigate climate change impacts or do not disclose their material financial climate risks.

Technology Risk

Winners and losers will emerge during the transition to a low-carbon economy as new technology displaces old systems. For example, low-carbon concrete with technologies that sequesters carbon during cement production could supplant the use of traditional high-carbon concrete.

Market Risk

The supply and demand for certain commodities, products, and services may change as climate-related risks and opportunities are increasingly taken into account. For example, traditional markets may be disrupted by shifting consumer behaviour or the increasing cost of raw materials.

Reputation Risk

Customer and community perceptions may change based on an organization’s contribution or detraction from addressing climate change. The public may demand greater contribution from an organization to transition to a lower-carbon economy.

District energy accelerates decarbonization and builds climate resilience

Buildings are a significant and complex source of emissions

Buildings produce 17% of Canada’s greenhouse gases, including emissions from generating electricity, and heating and cooling our buildings. In order to mitigate the repercussions of climate change, we need to devise ways to reduce the amount of greenhouse gases released. The smooth functioning of our electrical, heating and cooling systems are crucial for our economic, social and political cohesion. There is potential to turn this climate risk into an opportunity to create good, green and local jobs by capitalizing on our increasing collective need for resilient, low-carbon energy security.

Resilient energy systems are one of our greatest challenges

Finding secure, safe, reliable, and resilient sources of energy to support and drive growth in our urban centres will be one of the greatest challenges of this century.

The University of Toronto Centre for Resilience and Critical Infrastructure defines resilience as “…that essential ability of an operation to respond to and absorb the effects of shocks and stresses and to recover as rapidly as possible.”

Resilience is a response to the future, not the past. Historically, municipal infrastructure was built on the assumption of 50 to100-year extreme weather events, floods, or other natural disasters. Unfortunately, that paradigm no longer stands. With increasingly frequent and intense weather events, the threat to critical infrastructure service interruption continues to escalate.

Becoming resilient costs less than cleaning up

To manage climate impacts, local governments and the private sector will need to plan for extreme climatic shocks. Worries over the economic disruption caused by increasingly frequent, climate-induced severe weather events and escalating carbon emissions is adding urgency to the momentum to both mitigate and adapt to the potential impacts of climate change.

The cost of mitigating vulnerabilities of a future climate during construction is much cheaper than the cost of restoring infrastructure after it has been damaged, says a Simon Fraser University report.

Money spent on clean-up diverts investment

In 2013, severe flooding events shut down downtown Toronto, prompting the evacuation of residences and the closing of businesses for several days. It was the most costly natural disaster in Ontario’s history. $850 million in damage was insured, which likely resulted in higher premiums for residents. Some of the uninsured losses were assumed by homeowners and businesses, or covered by charity, or government aid. All of that money spent was diverted from other economically productive areas or social services.

how district energy helps decarbonize and build resilience

District energy’s decentralized and modular structure makes it well-positioned to be a big part of a resilient and low-carbon energy future. A district energy system also makes it easier to introduce the use of less carbon-intensive fuel sources, such as solar thermal, heat recovery from sewers, bioenergy, cold lake water, and ground heat, and integrate them at an energy centre with virtually no impact on the connected buildings.

When Hurricane Sandy struck New York City in 2012, an estimated 8.5 million people lost electricity. However, a small number of facilities (residential buildings, hospitals, universities and public service facilities) kept their critical equipment running because they were powered by a CHP plant. With climate change wreaking havoc around the world, with alarmingly increasing frequency, there is a need to develop community resiliency centres that can support our communities through times of emergency.

climate strategies BOLSTER the case for District Energy

A community with a resilience strategy can help spur the development of low-carbon and resilient district energy systems. Similarly, an organization with a resiliency strategy may prioritize planning for district energy.

Frameworks and resources exist that help bring climate considerations to the core of community planning. For example, EcoDistricts empowers district-scale urban development practitioners to achieve ambitious performance outcomes in equity, resilience, and climate protection. While ICLEI Canada (Local Governments for Sustainability) – a global network of more than 1,750 local and regional governments committed to sustainable urban development – is a hub for many frameworks and climate-related resources specifically designed for cities.

These resources recognize that district energy plays an important role when developing or implementing community climate mitigation and adaptation strategies.  For example, the District Energy in Cities initiative supports local governments to build know-how and implement enabling policies that accelerate investment in low carbon and climate-resilient district energy systems. Furthermore, municipalities across Canada have declared climate emergencies to accelerate their local action on decarbonization to align with the targets of the Paris Agreement. Modern district energy systems can help cities meet energy efficiency or net-zero energy building standards and renewable energy objectives.

Both the City of Vancouver and City of Toronto have included district energy in their climate plans. Vancouver has introduced district energy utilities with mandatory connection requirements. Toronto supports district energy with guidelines and reports, provides support for neighbourhoods to develop community energy plans, and has partnered with Enwave Energy corporation to expand district energy systems in the city.

How to manage your climate risk and harness opportunities

In order to manage your climate risk and harness your opportunities, you should bring a climate lens to your organization. This is crucial for developers, for example, who are looking to capture the full value of district energy systems in a wider climate strategy.

Apply a climate lens

A climate lens should be applied across the organization looking at governance, strategy, risk management, and metrics and targets.

Governance

The organization’s governance and climate-related risks and opportunities is an important place to start. Who is responsible for climate and what power do they have to set and implement the agenda?

Strategy

You should assess the impact of climate-related risks and opportunities on the organization’s strategy and financial planning. Is there a plan approved and supported by senior leadership?

Risk Management

Climate change should be incorporated into the processes used by the organization to identify, assess and manage climate-related risks. Have the risks been identified and plan in place to manage them?

Metrics and Targets

The plan and governance should be tied to metrics and targets used to assess and manage relevant climate-related risks and opportunities. Is there accountability?

Understand your risks

In order to mitigate the impacts of climate change, you need to understand your organization’s risks. For example, you may emit a large amount of carbon emissions or your built infrastructure may be susceptible to flooding. Understanding and prioritizing a response to your climate risk is an important step.

You will also need to understand the existing work across your organization that supports adaptation, mitigation and finding new climate-related opportunities. Your employees may be doing great work or thinking of innovative solutions but don’t feel like they have the agency to move forward on them.

Understand your opportunities

As economies mitigate and adapt to the impacts of climate change, new opportunities will arise. This may result from increasing resource efficiency and cost savings, building a resilient supply chain, sourcing low-emission energy sources, developing new products and services, or accessing new markets.

For example, having a resilient low-carbon district energy system that withstands grid outages may become a powerful marketing feature in areas frequently hit by extreme weather. This may also become attractive to investors with large pools of sustainable finance looking for new opportunities.

Understand your competition

You should understand your competition by taking stock of your industry’s climate strategies. As well, your processes should be compared to the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD). TCFD is not only a guide to best practices around disclosure but is also a good framework to understand how to build an effective climate strategy. These assessments can then be used to develop a gap analysis of your work compared to best practices.

Understand the uncertain future

We know the climate is changing. But there is a great deal of uncertainty around the scope and scale of both the impacts and the transition to a low-carbon and resilient future. Climate scenario analysis provide a framework to understand, approach and manage the complexity that climate change presents to business decisions.

Climate scenario analysis explores what a company’s business environment might look like under different climate scenarios, such as deep decarbonization or unconstrained climate change, and then integrate this information into your organization’s strategy. The scenarios offer different pathways, such as orderly or disorderly decarbonization, to understand potential changes to regulations, industry standards, technology, etc.

Partner with climate experts

Climate experts that range in expertise from climate modelers to strategists can help you develop climate-smart solutions. Climate strategists can help you apply a climate lens to develop solutions to thrive in a low-carbon and resilient economy.