investment viewpoints
Sustainability watch: oil and gas subsidies, artificial rain, and carbon markets
Our selection of sustainability news from November includes news of a co-ordinated push to end subsidies for foreign oil and gas operations and coal mining, India’s plans for artificial rain, and China’s loosening of the rules governing its carbon market.
The UK and the EU are expected to push the world’s richest countries to end subsidies for foreign oil and gas operations and coal mining at a closed-door OECD meeting next month. Catastrophic air pollution has led scientists in Delhi to draw up plans to induce artificial rain. China has loosened the rules governing its carbon market after prices rose to a record, to make it easier for power generators to meet rising winter demand.
Company names are provided for information purposes only – these businesses are not necessarily held in our portfolio or among investment recommendations.1
The UN has said that developed countries have slowed in their commitments to assist poorer nations in adapting to climate change. Despite growing instances of extreme weather events linked to climate change, the shortfall in this pledge is now 50% larger than previously estimated. Developed countries pledged in 2009 to provide USD 100 bn a year in climate finance to poorer nations, but the annual financing shortfall for adaptation alone now stands at USD 194 bn to USD 366 bn, with existing financial flows reaching just USD 25 bn during the 2017-2021 period, according to UN Environment Program (UNEP).
For the first time in its 110-year history, the Panama Canal will see a reduction in the number of ships crossing due to climate change. More than 3% of all global trade passes through the canal but one of the worst droughts on record is forcing authorities to cut the number of ships from the average around 36 a day to 31. The canal authority said it would further limit crossings to 25 bookings a day later this week and gradually reduce it before reaching just 18 from February next year. The reservoir system that supplies the canal also provides drinking water for almost half the country’s population.
The FT reports that the UK and the EU will push the world’s richest countries to end subsidies for foreign oil and gas operations and coal mining at a closed-door OECD meeting next month. The move builds on a commitment by some OECD countries to align public finance institutions with Paris agreement goals to limit global warming to well below 2C and ideally 1.5C above preindustrial levels. But the effort to end subsidies for foreign projects will draw attention to the prevalence of domestic subsidies for oil and gas industries.
Australia is offering residents of the Pacific island nation of Tuvalu a chance to migrate to escape climate change as part of a landmark treaty with one of the countries most affected by global warming. The two countries signed the deal, which included a security pact, at the Pacific Islands Forum in Rarotonga, Cook Islands. The so-called mobility pathway allows 280 people affected by climate change to apply for a special visa to resettle in Australia every year. The island nation’s total population is about 11,000.
Catastrophic air pollution has led scientists in Delhi to draw up plans to induce artificial rain. The plan involves dropping salts or silver iodide into clouds from an aeroplane in order to spur the formation of rain droplets in a process known as “cloud seeding”. The scheme comes after air quality in north India returned to crisis levels.
| Thematic link: The transition to a low-carbon and climate-resilient economy will require innovation, commitment and significant investment. Click here to find out more |
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China has loosened the rules governing its carbon market after prices rose to a record, to make it easier for power generators to meet rising winter demand. Coal-fired power plants, which are due to buy carbon permits to meet emissions targets by the end of the year, were informed by the environment ministry that they’ll be allowed to borrow more from future allowances, according to Bloomberg. Beijing has moved aggressively to forestall another round of economy-crippling power crunches by raising supplies of coal, its mainstay fuel, to record levels. But concerns persist that periods of peak demand could still overwhelm the grid in some places. Power-thirsty aluminium smelters in Yunnan province, for example, plan to cut output again this winter as their usual supplies of hydropower wane during the dry season.
The European Parliament voted 448-65 to set up a certification system for the quantification, monitoring and verification of carbon removals, aimed at increasing their use, while building trust with high quality carbon removals, and countering greenwashing. Launched late last year, the proposal formed part of the European Green Deal, the EU’s strategy to achieve climate neutrality by 2050. While the strategy relies primarily on absolute greenhouse gas (GHG) emissions reductions, emissions that cannot be eliminated will need to be balanced out with carbon removals. Carbon removal is emerging as a key tool in the fight to address climate change, although most technologies and solutions to capture and store carbon from the atmosphere remain at fairly early stages. According to the landmark IPCC climate change mitigation study released last year, scenarios that limit warming to 1.5°C include carbon dioxide removal (CDR) methods scaling to billions of tons of removal annually over the coming decades.
| Thematic link: Carbon pricing is a key enabler of the transition to a CLIC® economy. We believe an active carbon strategy can help investors capture attractive return opportunities while hedging transition risks in their portfolios. Click here for more information. |
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US officials plan to invest USD 1.3 billion in three proposed power transmission lines. Transmission has emerged as a major obstacle to President Biden’s climate plans, which call for more solar and wind generation than the current grid can support. The current system’s reliability has also come under increasing stress from heat waves and intense storms as the climate warms. But new transmission lines often face fierce opposition from nearby communities. The three projects span six states and will enable 3.5 gigawatts of electricity to be added to the grid, enough for 3 million homes.
Indonesia's President Joko Widodo inaugurated a 192-megawatt peak (MWp) floating solar power plant on a reservoir in West Java province as part of a drive to increase renewable energy sources and switch away from coal. The USD 108.70 million project was developed by Indonesia's state utility company and United Arab Emirates renewable energy company Masdar, a unit of Mubadala Investment Company. The solar power infrastructure was built on Cirata reservoir, 108 kilometres southeast of Jakarta. A hydropower plant at the dam has an installed capacity of about 1,008 MW.
Global mining and metals company Rio Tinto and energy and telecom cable manufacturer Prysmian announced a new partnership aimed at developing a more sustainable North American supply chain for materials needed to expand power grids for the energy transition. The new partnership comes as significant investments in power grids will be required to enable the growing share of power generation from renewables, which the US Energy Information Administration projects will increase from 21% in 2021 to 44% in 2050 in the US. According to a report released earlier this month by the International Energy Agency (IEA), 80 million kilometres of power lines will need to be added or replaced globally by 2040, roughly equal to the entire global grid today.
Britain will increase the guaranteed price offered for offshore wind projects in its next renewables auction by 66%, the government said, as it seeks to spur more projects after its last auction failed to attract any offshore wind investment. Britain, which is already the world’s second largest offshore wind market after China, is seeking to ramp up its capacity to 50 gigawatts (GW) by 2030 from around 14 GW now, to help meet its climate targets and boost energy security. The offshore wind sector has been hit by surging supply chain and interest rate costs over the past year with some developers cancelling projects, while Britain's last auction yielded no offshore wind projects when the results were announced in September with developer saying the price offered was too low.
Sweden's government said it aimed to build the equivalent of two new conventional nuclear reactors by 2035 to meet surging demand for clean power from industry and transport and was prepared to take on some of the costs. By 2045 the government wants to have the equivalent of 10 new reactors, some of which are likely to be small modular reactors (SMRs), smaller than conventional reactors. Countries like Poland, the Czech Republic, and Britain are looking at expanding nuclear power as societies transition to a fossil-fuel free future.
| Thematic link: Click here to find out more about the sectors that are well-placed for the renewables transition, as well as the growing investment opportunities arising from climate adaptation. |
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Automotive giant Toyota announced plans to dramatically increase its electric vehicle battery capacity in the US, with an additional USD 8 billion investment in its North Carolina battery production plant. With the new announcement, the company’s commitment to the facility grows to nearly USD 14 billion, marking one of the largest-ever investments in US EV battery capacity. Toyota announced an initial USD 2.3 bn investment in the North Carolina facility announced last year as part of a USD 5 bn initiative to increase its EV battery production capacity in the US and Japan, and earlier this year allocated another USD 2.1 bn to increase planned capacity for the site, aimed at creating a hub for developing and producing lithium-ion batteries for its expanding portfolio of electrified vehicles.
The European parliament has voted against plans for big cuts in petrol engine emissions, but agreed to regulate the amount of microplastics that vehicle tyres and brakes can shed for the first time. Under the EU’s new Euro 7 emission standards, MEPs agreed to set fuel emissions limits at the lowest level permissible under current regulations, arguing that further reductions would force carmakers to spend money developing new fossil fuel engines, which are being banned in 2035, instead of on development of electric vehicles.
Scania is combining with logistics firm sennder Technologies to deploy 100 e-trucks to carriers in Germany starting next year on a pay-per-use model, with a plan to expand to 5,000 vehicles by 2030, the companies said. By getting more e-trucks on the road, Scania hopes to build momentum for investment in infrastructure, such as charging stations, needed for a broader shift to battery-powered trucks.
| Thematic link: To find out more about the challenges and opportunities presented by the transport revolution, click here. |
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New York state is suing food and drinks giant PepsiCo for plastic waste pollution. New York attorney-general Letitia James has demanded that the soft-drink maker reduce the quantity of packaging released into the Buffalo River and pay for the damage caused by microplastics to people and the environment. Of the 1,916 pieces of plastic trash collected from the Buffalo River in a survey conducted by the attorney-general’s office last year, the most prominent producer they identified by far was PepsiCo, with more than 17% share of the waste. Fast-food chain McDonald's followed with 5.7%, and candy maker Hershey’s accounted for 4.2 %. The filing against PepsiCo, the world’s second-largest food company, is one in a swell of lawsuits brought by local authorities, consumer protection groups and non-profits against corporations about their impact on the environment and climate change.
| Thematic link: Transitioning to a circular model for plastic represents a USD 1.2 trillion global economic opportunity. Click here for more information. |
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Indonesia, the world’s largest palm oil producer, will return 200,000 hectares of palm oil plantations found in protected areas to the state to be converted back into forests. This is part of the government’s efforts to mitigate climate change and improve governance in the palm oil industry. The government has identified 1.67 million hectares of palm oil plantations in forests. The government is still cataloguing which of those are found in designated production forests, meaning owners will have to pay fines but they can continue to grow palm trees, and which are in protected areas and must be returned to the state. Indonesia’s chief security minister Mahfud MD has threatened legal action against palm oil companies that use land illegally after the November 2 deadline to submit paperwork and pay fines passes.
Namibia began construction on Africa's first decarbonised iron plant, to be powered exclusively by green hydrogen, the country's investment promotion body said. Steelmaking is one of the most polluting industries in the world and the industry is seeking to shift away from coal-fired plants and towards the use of decarbonised iron. The Oshivela project in western Namibia is backed by the German federal government, which has injected 13 million euros, and will use renewable energy to generate 15,000 tonnes of iron per year with no carbon emissions. Production at the plant is set to begin in the final quarter of 2024, with plans eventually to ramp up production to 1 million metric tons of green iron a year. The iron produced at the plant can also be used as a preliminary product in steel production in Germany to manufacture green steel for the production of wind turbines or vehicles.
McCain Foods USA was awarded USD 6.9 million in funding through the US Department of Agriculture (USDA)’s Regional Conservation Partnership Program (RCPP), which will be used as part of an “Improving Soil Health in Potato Supply Chains” project. Under that project, McCain Foods USA and its partners, Campbell Soup Company and the Soil Health Institute (SHI), will help potato farmers implement soil health and climate-smart agriculture practices and systems on more than 6,000 acres in Wisconsin and Maine. McCain and Campbell both have corporate programs to help growers in their supply chains adopt regenerative agriculture practices and help fight climate change.
The European Commission is proposing a Forest Monitoring Law that will plug existing gaps in the information on European forests and create a comprehensive forest knowledge base, to allow member states, forest owners and forest managers to improve their response to growing pressures on forests and strengthen forest resilience. Better monitoring will enable action to make forests more resistant to the cross-border threats of pests, droughts and wildfires that are exacerbated by climate change, enable new business models such as carbon farming, and support compliance with agreed EU legislation. Ultimately, it will help strengthen the capacity of forests to fulfil their multiple environmental and socio-economic functions, including their role as natural carbon sinks.
Brazil's National Development Bank (BNDES) has approved USD 65 million from the USD 1.3 billion Amazon Fund to set up a security project fighting deforestation and other environmental crimes in the rainforest. It represents the first major law enforcement effort by the Amazon Fund, backed by four nations and managed by the BNDES, which agreed last month to back the project designed by the justice ministry and run by Brazil's Federal Police. Brazil's government has reduced deforestation significantly this year in the Amazon, which is vital to slowing global warming by absorbing carbon, but illegal loggers and miners still threaten the rainforest with impunity.
| Thematic link: We believe that companies supporting the circular economy and leveraging the regenerative power of nature will be the future winners. To find out more about the circular economy as an investment opportunity, click here. |
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