Taxonomy Foundations
Please feel free to answer only the questions that are of the most interest and relevance to you.
1a. The first phase of taxonomy development will focus on climate mitigation. In subsequent phases of the Canadian taxonomy, which objectives should be prioritized? Please select your top choices.
- Climate change adaptation / resilience
- Protection of biodiversity and healthy ecosystems
It is proposed that the design and implementation of the Canadian taxonomy be informed by the following six principles: Credible; usable; interoperable; dynamic; regionally specific; and prioritized.
2a. Do you agree or disagree with these proposed principles as the foundation for the taxonomy?
Agree
2b. Please share the reason for your answer in the space provided
I agree with all of the proposed principles except for "regionally specific". It is hard to see why any of the other five principles would not have universal application across the country. I suspect that the "regional" modifications to the other five principles will be to accommodate regional economic interests, which would compromise the integrity of the entire taxonomy.
3. Please rate each of the principles below on a scale from “very important” to “not at all important.”
- Credible
- Very important
- Usable
- Very important
- Interoperable
- Very important
- Dynamic
- Very important
- Regionally Specific
- Not at all important
- Prioritized
- Very important
Do No Significant Harm and Minimum Social Safeguards
Please feel free to answer only the questions that are of the most interest and relevance to you.
The proposed taxonomy framework for Canada includes a set of Do No Significant Harm (DNSH) criteria and Minimum Social Safeguards (MSS), which will be designed to ensure that climate mitigation objectives do not adversely impact other environmental and social values, or legal rights. It is proposed that issuers must disclose the extent to which they meet specific criteria for both DNSH and MSS in order to claim taxonomy alignment.
4a. Do you agree or disagree with the proposed partial alignment approach, which would require entities to disclose the extent to which DNSH/MSS criteria are or are not met rather than requiring full alignment with all DNSH/MSS criteria?
Disagree
4b. Please explain your answer in the space below
The bottom line of the proposed partial alignment approach is that an activity can still achieve taxonomy alignment label while not meeting the DNSH and MSS criteria. This , in essence, makes compliance with the DNSH and MSS criteria optional.
As well, lending institutions and investors eager to claim the reputational benefit of having taxonomy aligned investments will be free to check the box of taxonomy alignment regardless of the degree of compliance with DNSH and MSS criteria.
In order to avoid this result, the taxonomy should prohibit any claim of taxonomy alignment (i.e., in press releases, public statements, speeches, etc.) unless the statement also specifies the degree of compliance with DNSH and MSS criteria.
5a. Do you agree or disagree with the proposed scope of objectives to be covered under the DNSH and MSS frameworks?
Strongly agree
5b. Please explain your answer in the space below
As noted in my answer to question 4b, the scope of the objectives matters only to the extent that taxonomy alignment requires compliance with these objectives. The partial alignment approach to compliance with DNSH and MSS criteria make clear that partial compliance. or non-compliance, can still result in taxonomy alignment as long as the partial or non-compliance is disclosed.
6a. Do you agree or disagree with the proposed approach to grounding the DNSH/MSS frameworks in Canadian legislation and going beyond existing laws and standards where necessary?
Neutral
6b. Please explain your answer in the space below
We have seen a considerable roll back of federal and provincial and territorial environmental standards. As a result, grounding the DNSH/MSS framework in Canadian legislation will produce an ever lowering bar for taxonomy alignment.
In any event, companies are required to comply with existing laws and standards regardless of the taxonomy. It is accordingly unclear what is added to the rigour of the taxonomy by mandating that taxonomy alignment requires compliance with existing obligations.
As well, if DNSH and MSS frameworks are grounded in legislation that companies claiming taxonomy alignment are by law obliged to comply with, it may be awkward for such companies to disclose areas in which they do not comply with DNSH and MSS frameworks: such disclosure would, in effect, constitute an admission of non-compliance with existing legal obligations.
7. In which areas, if any, is it necessary to go beyond existing laws and standards for the DNSH/MSS framework?
Certainly in areas where different environmental and climate obligations exist in federal, provincial and territorial regulation of an activity, the most stringent standard should apply.
If this is not the case, distinct taxonomies should be developed for the federal government and each province and territory, This would acknowledge that the meaning of compliance with the DNSH/MSS criteria may well vary depending on the regulatory environment of the applicable jurisdiction.
8a. Do you agree or disagree that different DNSH/MSS standards should apply to projects or entities of different sizes? E.g. more comprehensive disclosures required for larger projects and/or entities, with more streamlined disclosures for smaller projects and/or entities?
Neutral
8b. Please explain your answer in the space below
While proportionality is generally a cornerstone of all regulation, the essential features of the taxonomy criteria (such as guardrails and conditions for taxonomy alignment) must not be compromised.
9. Are there any gaps in the proposed DNSH/MSS framework that could result in unintended environmental or social harms?
The taxonomy itself does not address Scope 3 emissions. As a result, all environmental and social harms resulting from taxonomy aligned activities (such as carbon pollution from the combustion of fossil fuels) will, a priori, not be addressed in the proposed DNSH/MSS framework.
The DNSH/MSS framework applying to nuclear power generation should include disposal of nuclear waste.
10. How should the taxonomy operationalize the principles of the UN Declaration on the Rights of Indigenous Peoples and, in particular, the principle of Free, Prior, and Informed Consent, in the MSS framework?
The principle of free, prior and informed consent should be incorporated into the MSS framework.
Section 3: Activity Classification Framework
Please feel free to answer only the questions that are of the most interest and relevance to you.
The activity classification framework proposes that the green category should be limited to activities with zero or near-zero emissions that make a substantial contribution to climate change mitigation or to activities that directly enable zero to near-zero emissions climate solutions (e.g., electric vehicle manufacturing facilities)
12a. Do you agree or disagree with this approach?
Strongly agree
The framework proposes that the transition category should include activities that have materially high emissions today but have the potential to decarbonize sufficiently to align with the green definition (i.e., zero to near-zero emissions) by 2050. These activities are likely to experience stable or growing demand in Paris-aligned representative pathways due to a lack of technically feasible low-carbon substitutes (e.g., major decarbonization investments in steel, cement, and chemicals manufacturing).
13a. Do you agree or disagree with this approach?
Strongly agree
13b. Please explain your answer in the space below
I strongly support the approach of not including fossil fuels in the transition category.
However, the extent to which investments in this category will further short term decarbonisation depends on the effectiveness of the guardrails on these investments.
14a. Do you agree or disagree that the proposed guardrails for the transition category (both for the whole-of-activity and measures pathways) are sufficient to protect the science-based credibility of the category and reduce the risk of carbon lock-in, while supporting usability?
Agree
14b. Please explain your answer in the space below
The concept of the guardrails is an essential aspect of the transition category. However, the value of these guardrails will depend upon them being effective, transparent and useable, and do not prolong the life of carbon polluting activities. I look forward to seeing the guardrails and hope they will be effective.
The report proposes that initial research on the abatement measures category should be conducted in 2027 and include select emissions-reduction measures for activities that have high Scope 1 emissions today and are unable to achieve the life cycle emissions reductions necessary to align with Paris-aligned pathways (e.g. major decarbonization investments in the upstream production, refining, and distribution of oil and gas). These are activities that are highly likely to experience declining demand as the world transitions to clean energy and alternative technologies.
15a. Do you agree or disagree that the taxonomy should include a third “abatement” category, as proposed, that covers demand-decline activities?
Strongly disagree (i.e., disagree on fundamentals)
15b. Please explain your answer in the space below
The abatement category appears to be reserved for fossil fuel extraction and transportation. As these activities make up a significant part of Canada's GHG emissions, and combustion of fossil fuels is the single largest cause of global warming, I submit that they have no place in the taxonomy.
While reducing the carbon intensity of fossil fuel extraction may result in small reductions in the carbon intensity of the activity, this is nullified by the increased emissions from increased production. As well, the such reductions in carbon intensity have no effect on the fossil fuels' Scope 3 emissions of 80% caused by their combustion.
This is all the more true when alternatives to fossil fuel combustion (electric vehicles, renewable electricity production) exist.
The report proposes an illustrative list of guardrails for the abatement measures category that, if formally developed and finalized, would be designed to prevent carbon lock-in and ensure the abatement measures category remains credible within a Paris-aligned framework. When thinking about the taxonomy’s credibility and usability, please provide feedback on this illustrative list of guardrails.
16. Should any additional guardrails be considered?
If an Abatement category is included in the Taxonomy:
> all of the guardrails in the draft Report should apply to all permitted measures, without regional variation.
> the "significant reduction" requirement should set a very high bar
> the guardrail for existing assets should exclude expansion
> carbon capture measures should not include enhanced oil recovery, as using captured carbon to extract more oil cannot be considered sustainable
Section 4: Technical Screening Criteria
Please feel free to answer only the questions that are of the most interest and relevance to you.
18a. Do you agree or disagree with the proposed approach for developing technical screening criteria?
Strongly agree
18b. Please explain your answer in the space below
Again, the concept of technical screening criteria, while fine in theory, must be translated into workable and transparent requirements that will further the goals of the taxonomy.
19. Please rate each of the proposed elements for the screening criteria on a scale from “very important” to “not at all important.”
- Forward-looking wherever possible
- Very important
- Include sunset and/or sunrise dates where relevant
- Very important
- Revise as necessary during regular review periods
- Very important
- Primarily use quantitative metrics
- Very important
- Primarily focus on Scope 1 emissions but address Scope 2 and 3 emissions where feasible and/or material
- Very important
- Informed by a range of robust methods
- Very important
20. When thinking about the taxonomy’s credibility and usability, how technologically specific or prescriptive should the technical screening criteria be?
Performance based criteria are often used in legislation and codes. However, they are generally subject to verification by regulatory authorities. using performance based criteria risks allowing unverified and speculative theories to justify the technical screening criteria. To the extent that performance based criteria are used, consideration should be given to a requirement for peer review.
The more prescriptive the technical screening criteria are, the more transparent will be the evaluation of compliance with them.
21. Do you agree or disagree with the proposed approach of focusing primarily on Scope 1 emissions, and addressing Scope 2 and 3 emissions where feasible and/or material?
The omission of Scope 2 and 3 emissions seems a material one. This is particularly the case where
– energy intensive technologies are generated from highly GHG polluting energy sources (such as coal or natural gas),
– activities such as fossil fuel extraction and refining result in 80% of their emissions being Scope 3, and
– activities ancillary to fossil fuel extraction (such as pipelines), encourage further fossil fuel extraction.
Final questions
22. Overall, how satisfied are you with the proposed sustainable finance taxonomy framework?
Satisfied
23. Is there any other feedback you would like to provide on the methodology report as a whole that has not already been covered?
The development of a taxonomy is a very important, and difficult, undertaking. CCI and BFP are to be congratulated on taking the first steps to achieve this goal. I look forward to seeing how the principles of the draft report (particularly the guardrails and screening criteria) are implemented, as the devil will be in the details.