Mark Trexler, as one would say, has a substantial and inspiring amount of experience. With more than 30 years of regulatory and energy policy experience, he has advised clients around the world on climate change risk and risk management. In 1988, while completing a PhD in International Environmental Policy at the University of California at Berkeley, Mark joined the World Resources Institute in Washington, DC. There, he worked on the first carbon offset project, the CARE Agroforestry Project in Guatemala.
He founded Trexler Climate + Energy Services (TC+ES) – the first U.S. consulting firm to specialize in corporate climate change risk management – in 1991 and directed the Global Consulting Services Group of EcoSecurities from 2007 to 2009.
Between 2009 and 2012, he was a Director of Climate Risk for the global risk management firm Det Norske Veritas in Oslo. Mark has also served as a lead author for the Intergovernmental Panel on Climate Change on forestry mitigation, and carbon accounting and carbon offset on land use. Now Director at The Climatographers which helps decision-makers making sense of the infinity of climate information, he is widely published on business risk management topics surrounding climate change, including in the design and deployment of carbon markets.
Gabriela: In 1988, you were working with the World Resources Institute, carrying out the first carbon offset project via a CARE agroforestry project in Guatemala. You’ve also founded TC+ES, a consulting firm where you carried out many of the first carbon offset projects. It has recently become trendy for corporations to advertise their efforts to become carbon neutral. In reality, a large majority of this carbon neutrality is based not on changing business practices but instead on purchasing carbon offsets to counteract a large number of their emissions. While the idea of offsets has proved very popular in the industry and other circles, some evidence suggests that they are “unreliable” or ineffective. For instance, the company British Airways carbon offset scheme launched in 2005 has been disappointing with less than 0.01% of its emissions offset from the 27m tonnes of CO2e its planes have emitted into the air.
Despite its divided reputation, do you think carbon offsets can be an effective solution to lower our global carbon emissions and mitigate climate change?
How did the market evolve since the 90s when it started to become popular? And can we have your thoughts on the future of carbon offsets?
Mark: First, let’s differentiate between a couple of things. When British Airways’ carbon offset scheme proved disappointing, that was an issue of customer education and willingness to pay. It’s true that people have generally been quite slow to purchase carbon offsets for their flights and other activities, but that isn’t inherently the fault of carbon offsets. Although one of the reasons consumers might be less likely to purchase offsets is because of concern about their “quality”. I, for example, worked on the first carbon offset project 30 years ago, but I don’t buy airline offsets because I have a pretty good idea of where the money goes, and a pretty good suspicion that I wouldn’t be doing much for the climate.
Before getting into the biggest problem offsets have had, let’s talk about the future of carbon offsets some three decades after they were invented. Carbon offsets were a great idea. They got started during a period when there were no climate policies at all, and almost no one knew much about climate change. Carbon offsets were a way to get people and companies thinking about climate change, and they served as a “slippery slope” for companies. Once you’ve started buying carbon offsets, for example, it gets a lot harder to deny the reality of climate change. But 30 years later, the general context is very different. Everyone accepts the reality of climate change. And in that context, it’s not at all clear that carbon offsets have the same role to play. Meeting a 2°C target, much less a 1.5°C target, will require massive emissions reductions (and enhanced sequestration) across the board; 70-90% reductions over the next couple of decades, for example. If countries put the policies into place to accomplish those reductions, where is the offset supply supposed to come from? Offsets have to be “additional” to what would have happened anyway. Now, if you don’t believe that we’ll take climate change seriously, and actually work towards the 2°C target, and therefore offsets can help, I can see that argument. But we shouldn’t be talking about a 2°C world and a massive increase in the use of offsets in the same sentence. Voluntary carbon offsets cannot bring about a 2°C world.
But lets quickly come back to the biggest problem offsets have had, and that is a lack of environmental integrity. Offsets have always been about two things: 1) mitigating climate change, and 2) reducing the cost of mitigating climate change. These are not consistent objectives. You can’t maximize for both simultaneously – you are inevitably trading off environmental integrity versus cost-effectiveness. To make a long story very short, offset programs and policies have ended up favouring the cost-effectiveness side of the scales. After all, buyers want low-cost offsets, and sellers want to sell them offsets. So, the rules have generally been written, intentionally or not, to promote cost-effectiveness. And buyers have no way of knowing whether they’re buying a “quality” offset or not. That has led to a race to the bottom of the market. It didn’t have to be that way, and there are things we could do to fix offset markets, but there’s not a lot of interest among key players in doing so.
Gabriela: Carbon Capture and Storage (CCS) could be an important key technology to reduce carbon dioxide emissions from the energy and industrial sectors. Worldwide adoption of CCS has been found to be critical if fossil fuel reserves are to continue to be accessed whilst still meeting climate targets. However, few large-scale CCS plants are operating worldwide due to a series of technical barriers and short-term high costs. Do you believe CCS will scale up and has the potential to make the fossil fuel E&P companies carbon neutral?
Mark: CCS has been under discussion and development for decades. I had one utility client that was convinced that CCS costs would fall to $20/ton by the year 2000. They didn’t. In fact, my former employer Det Norske Veritas had a large CCS program for many years but shut it down soon after I left the company in 2012 for lack of industry interest. So, CCS is by no means new, but it is true that there is certainly a great deal of renewed interest in it. I see two scenarios for CCS. The first is that there is some sort of technological breakthrough that brings CCS costs way down very quickly. That could be a gamechanger, but after decades of waiting for the breakthrough I’m sceptical. The other scenario reflects the economic Catch-22 currently facing CCS. CCS has to compete with carbon neutral energy production and distribution, in other words: renewables + storage or renewables + super grid. Right now, the costs of storage, and the absence of a super grid, explain why people are interested in CCS. But renewable costs are continuing to fall, storage costs are falling, and there is renewed interest in super grids that could transport renewable energy from one side of the planet to another. If governments were to mandate the use of CCS to reduce energy and industry sector emissions, that would in effect be like putting a relatively high carbon tax into place. If that happened, I suspect the economics of carbon neutral energy would instantly swing in favour of renewable and storage. So, we could put a great deal of costly CCS infrastructure into place, only to see it almost immediately stranded by lower cost carbon neutral alternatives. I think private players will be very cautious about investing big into CCS under these circumstances. CCS could turn out to be the shortest “transition technology” ever.
Gabriela: As a visiting scholar at George Washington University since 2016, you teach “Business Climate Change mitigation”. With abundant evidence pointing climate change as a disruptive societal risk (food insecurity, a threat to our health, effect on water resources, etc.), the global business community has increasingly been urged to take voluntary steps to tackle climate change. We found really interesting two points you come across in your graduate course which are:
– How societal and business risk perceptions and responses to climate change differ?
– Why companies should recognize climate change as an important enough systemic risk to justify a far more active role in advocating for climate policies and measures?
Could you expand and develop a little bit more on those topics?
Mark: While it’s tempting to say that companies should step up to solve the problem of climate change that policymakers have failed to solve, you have to think about the incentive structures involved. Policymakers are supposed to be thinking about societal welfare and are supposed to be thinking decades into the future. They are obviously the actors who should be internalizing the economic externality leading to climate change through a wide range of policies and measures. Why don’t they? Primarily because they have to get re-elected every 2, 4, or 6 years, and the future doesn’t vote. Even though they are supposed to have a long-term perspective, they don’t. Now let’s think about business decision-makers. They are NOT supposed to have a long-term perspective, or at least generally haven’t with some exceptions. They are supposed to represent shareholders and deliver robust financial returns in the near term. Now we are asking business decision-makers to become the long-term thinkers focused on the needs of society. Is that really plausible? To me it seems like #greenwishing. Not because business leaders are in any sense bad, but because it’s not their job. Business decision-makers should be figuring out how to adapt to the policies and measures put into place by policymakers to tackle climate change; that’s the role of business decision-makers. There is certainly a lot of discussion today of business abandoning the (near-term) profit motive in order to advance long-term societal needs, but I’m sceptical.
With respect to the second part of your question, what I will say is that business decision-makers should be MUCH more active in pushing policymakers to act on climate change than they currently are. CEOs should be thinking much more about their policy footprint, and less about their carbon footprint. Why am I saying this? It’s not because CEOs should see themselves as responsible for solving society’s wicked problem. It’s because CEOs face growing business risk from climate change in the form of systemic risk events that could be as disruptive to them as the COVID-19 virus, and companies can’t mitigate systemic risks on their own. They can make their factories more resilient to extreme events, but that doesn’t help against systemic risks. The only way to mitigate systemic risk is to actually mitigate climate change, and the only way to do that is through public policies and measures. So again, a concern over systemic risk has risen dramatically in the last five years, companies have a basic business risk management motivation to focus more on enlarging their “policy footprint” through climate policy advocacy.
Gabriela: In an interview you gave to EarthSayers.tv in 2016, you said that the companies who tend to think about climate risk are often the larger corporations because they are the most equipped. They have the people, the departments, strategic planners, risk officers, etc. Today, more and more, big companies are leading the battle on climate change. Google HQ in Silicon Valley is now powered by 100% renewable energy, the shipping company Maersk aims to be carbon neutral for 2050 and Tesla produced its one-millionth electric car in March 2020, making it the first electric vehicle manufacturer to do so.
Have you noticed a shift of pattern among smaller companies and the interest in climate risk since then? You’ve also mentioned that the interest in corporate climate risk often comes from the CEO, but you’ve specified that it needs to come from the company as a whole. Do you think there is a shift happening there too? How to convince a company to tackle climate issues?
Mark: I think the biggest way to convince companies to prioritize climate change as a problem is to get them to understand just how big a source of business uncertainty climate change will be, and that uncertainty = risk. Climate change, and what some people are calling an “inevitable policy response”, will be hugely disruptive to many companies. Perhaps next year, perhaps 10 years from now. We can now make the risk case far more effectively than we could 10 years ago, because there is so much more data on how climate change is already manifesting, and how it is likely to manifest in the future. Companies have only scratched the surface of a full understanding of the 2nd and 3rd order impacts of climate change on their operations, facilities, business models, and customers. These aren’t something that global climate models can spit out.
While some companies are stepping up, we have to be pretty cautious in interpreting climate-related claims and commitments. While I don’t think there is a lot of active #greenwashing going on, there is an enormous amount of #greenwishing going on. Companies have claimed for years they were carbon neutral based on the purchase of poor-quality carbon offsets, or environmentally meaningless voluntary Renewable Energy Certificates (in the U.S.). Commitments out to 2050 should be taken with a huge grain of salt. Science-based targets are great, but they’ll never scale to have an actual impact on climate change. It’s a mistake to think that the individual voluntary actions and commitments of companies can scale to transformational change. There is just no evidence of that. That’s why companies should be doing all sorts of things on their own, certainly, but they should also be focused on policy advocacy and customer education to help get the necessary policies and measures into place. Not a commitment to advocate for climate policy in 2050, but today.
Gabriela: It seems like finally governments, companies, individuals are taking climate change issues seriously. That also means that it became increasingly difficult to track all the business risk and risk management conversations; making it hard to effectively integrate climate risk mitigation and adaptation into business decision making. Is this the reason why you and your business partner Laura Kosloff have created The Climatographers in 2013, to build a comprehensive business risk knowledge management system? The Climate Web provides access to actionable climate knowledge across hundreds of topics, incorporating tens of thousands of resources to help users find the information they need to identify and track the climate risk issues of most importance to them.
Moreover, your Climate Change MBA cleverly pulls together a lot of wide-ranging information that business decision-makers would ideally have access to when it comes to climate change. Do you think companies are more prepared now on climate change risk management to develop and implement comprehensive climate strategies? Do you think companies are getting more efficient at scenario planning risk for climate change?
Mark: There’s no one-size-fits-all answer to those questions. I’ve come to see climate change as the ultimate knowledge management problem. There’s infinite information available to anyone, but the likelihood that decision-makers at any level will see the information that would serve as actionable knowledge in causing them to rethink their perceptions of climate risk and risk management is very small. Carla O’Dell, the mother of knowledge management, has a great quote: “If only we knew what we know.” We started building the Climate Web to make it possible for business decision-makers to “know what we know” about climate change, not just what they might read in the paper. Especially when it comes to business risk, it is almost impossible to get your head around all of the different climate change conversations. But failing to do so ensures that business risk decision-making will be sub-optimal. That’s why we’ve also built Your Climate Change MBA to help business decision-makers quickly access the core knowledge about dozens of climate topics that they should be in control of. And not through a formal course curriculum where they’ll have forgotten 80% of what they learned within six months, but through a structured access to the Climate Web where in minutes they can refresh their understanding of a topic or explore a topic that would never have otherwise occurred to them.
Companies are certainly getting better at being able to say they are tracking climate risks, developing risk management strategies, and carrying out scenario planning. But companies that remain primarily focused on reducing their carbon footprint as a risk management strategy, or investors that are focused on reducing the carbon intensity of their investment portfolio, don’t actually understand climate risk, and systemic risk in particular. Reducing your carbon footprint usually has a negligible impact (if any) on your climate risk, and the same goes for investment portfolios. If we get to 3°C of average global temperature change this century, as seems likely today, it won’t matter that you reduced your carbon footprint.
Scenario planning is an interesting case, and one we address in great detail in both the Climate Web and Your Climate Change MBA. I think good scenario planning is critical for companies to get their heads around climate risk. But you can also carry out scenario planning in a way that ends up being much more of a “check the box” exercise. The latter is certainly easier, and unless companies are incentivized to do the former, we’ll see a lot of scenario planning #greenwishing.
Gabriela: In the article you wrote called “Comparing Responses to COVID-19 versus Climate Change”, you explain that if we haven’t responded to climate change the way we’re responding to coronavirus, it is not because we’re lacking insights of how to achieve the more positive outcomes. One of the reasons is because we are lacking insight into overcoming human nature.
Indeed, COVID-19 sprung up quickly and there’s a very clear connection between cause and effect giving us the ability to draw a clear line between actions and consequences. Climate change, however, is not so simple. This is mostly due to its gradual timeline and scale. Additionally, the link between a particular death caused by climate change and our emissions is long and tangled.
What do you think could change the trend? Do you have an idea of how or what could push us towards rapid, collective action to fight climate change? We are indeed more psychologically equipped to deal with short-term, clear-and-present dangers like COVID-19. You wrote “If we could tear down the hundreds of silos that characterize climate action today, replacing games of Climate Solitaire with Climate Chess – we’d stand a much better chance of changing those collective action outcomes.” Can you extrapolate on what you mean by “Climate Chess”?
Mark: I’m glad you brought up Climate Chess, because I think it is the solution to climate change. Of course, it’s not a solution in the conventional sense – it’s not a silver bullet solution or even a silver buckshot solution. Climate Chess represents the reality that we don’t really know how to solve climate change today. Sure, we can come up with tons of engineering solutions, and “if only we all” solutions, but that’s not the same as knowing how to overcome all of the barriers that have impeded climate action for more than 50 years. Climate Chess takes as a starting point that there are two opposed teams, Team Urgency and Team No-Urgency, and they’ve been battling it out on the Climate Chessboard for decades (knowingly or unknowingly). And to date Team No-Urgency has been the clear winner; all Team No-Urgency has to do is defend the status quo, always easier than sparking transformational change (Team Urgency’s task). Team Urgency has hundreds of pieces on the board, but they’re operating independently, with little coordination. Furthermore, there are hundreds of millions of people who are alarmed or concerned about climate change but have little practical knowledge of how they can best contribute to mitigating climate change. Climate Chess is about enabling coordination among Team Urgency chess pieces and enabling individuals with the information they can use to actually help move those chess pieces forward on the board. There’s a big AI component to Climate Chess, but a lot of what’s needed to play Climate Chess is already in the Climate Web. Unfortunately, to date most NGOs and philanthropies working on climate change are all doing their own thing, with new NGOs springing up daily. That’s not how Team Urgency is going to defeat Team No Urgency. You can explore Climate Chess in a lot more detail here.