Sustainability watch: nuclear fusion, carbon markets, and biomass bottles

Plummeting prices in the UK's carbon market have increased the likelihood that exports of steel will be hit with additional CO2 levies to access the European Union market, unless London matches EU carbon policies. The European Union's carbon border levy will impose fees on imports of emissions-heavy goods including steel, aluminium and cement from 2026 - unless the exporting country has equal CO2 pricing policies. The UK, which has its own emissions trading scheme (ETS), had looked likely to meet that criteria. But changes made by the UK government earlier this year have seen the British CO2 price almost half since the beginning of April and UK allowances are now around 40% below the EU's. 

The European Commission announced the adoption of reporting rules for importers of products under the Carbon Border Adjustment Mechanism (CBAM), the EU’s new carbon tax on imported goods, aimed at equalising the carbon price paid by European producers with those outside the EU. The new rules will require companies to begin collecting data on the embedded emissions of imported products in October of this year, with reporting beginning by the end of January 2024, and will apply through the transitional phase of CBAM, which runs until the end of 2025. The main purpose of CBAM, adopted by the EU earlier this year, is to avoid “carbon leakage,” a situation in which companies move production of emissions intensive goods to countries with less stringent environmental and climate policies. 

Activist investor Kimmeridge proposed a system for rating carbon credits in a similar way to bonds, to help give buyers confidence their purchases would actually contribute to reducing planet-warming emissions. Companies can choose to offset their impact on the environment by buying carbon credits, which are generated by projects ranging from tree-planting to capturing of gases from industry, in a USD2 billion market which is currently unregulated. 

 

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.

 

Nuclear energy is gaining significant momentum in Ontario, with new plans to expand an existing plant to become the world’s largest and a pledge to add three small modular reactors to a site where another is already being built. The newly announced expansion at the Bruce Power facility marks the first large-scale nuclear build in Canada in over three decades. The province is home to all but one of the country’s 19 nuclear reactors, most of which were built from the 1960s to 1980s, during which time the Candu reactor became a global favourite. 

The US government lab that last year reached a long-sought milestone in nuclear fusion — achieving a controlled reaction that yielded more energy than it took to produce — has repeated the achievement, after months of near-misses. Being able to reproduce breakthrough may bring the world one step closer to using fusion as an abundant source of clean energy. But that future likely remains years off, if it happens at all. 

California Governor Gavin Newsom announced plans to develop a new Hydrogen Market Development Strategy, aimed at building the state’s clean hydrogen market. Hydrogen is viewed as one of the key building blocks of the transition to a cleaner energy future, particularly for sectors with difficult to abate emissions, in which renewable energy solutions such as wind or solar are less practical. The development of clean hydrogen capacity, such as green hydrogen, which uses renewable energy to power the process to extract hydrogen from other materials, will require massive investments in areas including infrastructure, electrolysis, transport and storage. 

China, the world's biggest renewable equipment manufacturer, will set up a recycling system for ageing wind turbines and solar panels as it tries to tackle the growing volumes of waste generated by the industry. China has ramped up its wind and solar manufacturing capabilities in a bid to decarbonise its economy and ease its dependence on coal, and it is now on track to meet its goal to bring total wind and solar capacity to 1,200 gigawatts (GW) by 2030, up from 758 GW at the end of last year. But as older projects are replaced and decommissioned, waste volumes are set to soar, with large amounts of capacity already approaching retirement age, posing big environmental risks. To cope with the challenge, China will draw up new industrial standards and rules detailing the proper ways to decommission, dismantle and recycle wind and solar facilities. 

Maxeon Solar Technologies plans to spend USD 1.2 bn to build the biggest US factory for polysilicon solar panels. The facility will be able to produce as much as 3 gigawatts of solar cells and panels a year, doubling Maxeon’s manufacturing capacity. The move comes as clean-energy investments have surged since Biden’s Inflation Reduction Act was passed a year ago, providing generous incentives aimed at boosting domestic manufacturing. Developers and suppliers have committed more than USD 270 bn in the past 12 months, more than the combined total of the prior eight years. 

 

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.

 

The Biden administration is pressing carmakers to sharply increase fuel economy by early next decade in a bid to cut gas usage and accelerate the country’s transition to cleaner or zero-emission vehicles. Under a proposal revealed by the US National Highway Traffic Safety Administration, automobiles would reach an average of about 58 miles (93.3 kilometers) per gallon by 2032. The plan calls for fuel-efficiency gains of 2% a year for passenger cars and 4% annually for light trucks, starting with model year 2027, as well as improvements for commercial pickups and work vans in the 2030s. 

Stellantis NV plans to start producing its first flex-hybrid vehicles powered by ethanol and electricity in Brazil by 2024. The world’s fifth-biggest automaker by sales has three prototypes combining electric with ethanol engines and one purely electric. Global automakers have been fighting a dispute over who will be able to put the solution that combines ethanol and electricity on Brazilian streets first. Volkswagen plans to introduce a total of 15 electric and flex-fuel vehicles by 2025, with hybrid models due to follow later. 

Transport and logistics company J.B. Hunt announced an initial order for 13 zero emissions Class 8 trucks from energy and transportation solutions Nikola, forming part of the company’s sustainability and emissions intensity reduction efforts. The initial order, set to delivered this month, includes ten battery-electric and three hydrogen fuel cell EVs, and will be will be located at facilities that serve J.B. Hunt’s main routes. The hydrogen and fueling infrastructure for these vehicles will be provided by Nikola’s hydrogen division, HYLA. The agreement follows the launch late last year by J.B. Hunt of a target to reduce carbon emissions intensity by 32% by 2034, with the incorporation of alternative powered equipment into its fleet as one of the key pillars of its strategy to reach the goal, alongside plans to expand the use of biogenic fuels and to improve fuel economy. 

 

Thematic link: To find out more about the challenges and opportunities presented by the transport revolution, click here.

 

Walmart is teaming up with a California startup to test technology that removes carbon dioxide from its supply chain, with plans to eventually turn that CO2 into yarn for clothing. The majority of the world’s captured CO2 is currently used for oil extraction, according to the Global CCS Institute, but Rubi’s system uses biochemical processes to convert the gas to cellulose, the main substance in the walls of plant cells. It’s a technique inspired by the way trees use carbon dioxide to grow. That cellulose is used to produce lyocell yarn, which can be made into textiles. After performance testing, Walmart and Rubi plan to develop a prototype apparel collection. 

LG Energy Solution announced the establishment of its first battery recycling joint venture with Zhejiang Huayou Recycling Technology The new JV will oversee the construction of two battery recycling plants in China—a pretreatment plant in Nanjing, where LGES is currently operating its battery production facility, and a post-processing plant in Quzhou, a strategic location to utilize Huayou Cobalt’s pre-existing infrastructure. 
 

 

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.

 

Japanese conglomerate Mitsubishi announced an agreement with consumer goods company Suntory Holding, and energy company ENEOS aimed at building a supply chain for the production of sustainable PET plastic bottles to be made from biomass. The companies expect to produce bio-paraxylene (bio-PX) equivalent to approximately 35 million PET bottles, to be used as a raw material for Suntory’s sustainable PET bottles in 2024. Mitsubishi will oversee the supply chain which starts with renewable fuel supplier NESTE supplying bio-based feedstock derived from 100% renewable sources like used cooking oil, replacing fossil-based naphtha. ENEOS will produce bio-PX at its Mizushima Refinery using the bio-naphtha as the starting material, and the bio-PX will be used to manufacture bio-high purity terephthalic acid (PTA) and bio-PET bottles. Suntory will then incorporate bio-PET resin into the production of sustainable PET bottles for its products. 

 

Thematic link: Transitioning to a circular model for plastic represents a USD 1.2 trillion global economic opportunity. Click here for more information.