💥Energy Flux💥 Tuesday, 30th March 2021

Big asset managers inflate ‘net zero’ expectations 🎈Heavy emitters buy absolution via LNG ‘carbon offsetting’ 🏭 + LOTS more 🚀

There’s rarely a dull day in the world of energy and climate news. Crammed into today’s issue:

  • Big asset managers inflate expectations with beefed-up ‘net zero’ pledges

  • Heavy emitters buy absolution as LNG ‘carbon offsetting’ gains traction

  • Under the radar (lots of energy transition stories you might’ve missed)

  • Energy perspectives (critical thinking on crucial energy issues)

Get 33% off forever

Big asset managers inflate expectations with beefed-up ‘net zero’ pledges

Is capital allocation about to reaching a tipping point in favour of low- and zero-carbon? Big name investment houses Blackrock, Vanguard, Aviva, Lazard and many others representing over $22.8 trillion of assets under management are promising just that, after committing to ‘net zero’ emissions by 2050 and – crucially – interim targets.

Expectations are swelling to epic proportions. The addition of Blackrock et al brings the number of signatories to the Net Zero Asset Managers initiative to 73, representing $32 trillion in assets under management (equivalent to 36% of the global total, according to the initiative’s organisers).

Signatories pledge to:

  • work with “clients on decarbonisation goals, consistent with an ambition to reach net zero emissions by 2050 or sooner across all assets”

  • set interim targets for % of assets to be included in this effort

  • review these targets at least every five years, “with a view to ratcheting up the proportion of AUM covered until 100% of assets are included”

But let’s take a step back. Making a promise is often easier than keeping it. As energy companies, investors and governments the world over have clamoured to sign up to 2050 ‘net zero’ targets, the phrase has become tarnished by the perception in some quarters that distant pledges are being made in bad faith, to provide convenient cover for carbon-intensive business as usual.

The proof will be in the pudding. Blackrock was accused of “hypocrisy” last year after failing to support climate resolutions at the AGMs of Australian oil companies Woodside and Santos, despite urging listed companies to take decisive climate action and threatening to dump stocks of those that don’t.

Campaigners are now calling for Blackrock to offload its most carbon-intensive holdings, such as those in Canadian tar sands operators, which raises the question: should investors seek to engage with big polluters to effect change from within, or divest and walk away? You can’t have it both ways.

As far as return on investment is concerned, Blackrock itself recently concluded that fossil divestment results in a modest improvement in fund performance – mostly thanks to the underperformance of oil stocks. This is somewhat encouraging, as it means fiduciary duty shouldn’t cloud the judgment of asset and fund managers seeking net zero alignment.

Get 33% off forever

Heavy emitters buy absolution as LNG ‘carbon offsetting’ gains traction

The questionable practice of carbon offsetting to absolve industrial consumers of their climate emissions continues to gain traction, with South Korean steel company Posco International becoming the latest to buy a cargo of ‘carbon-neutral’ liquefied natural gas from Germany’s RWE.

The 64,000-tonne LNG cargo has an emissions profile equivalent to 35,000 tons of CO2, according to Posco. This figure covers gas production and shipping emissions but seems too small to include end-use combustion of the fuel; Timera Energy estimates 190,000 tonnes of CO2 equivalent per standard cargo for end-use emissions. (Other recent deals for CO2-neutral cargoes have covered full lifecycle emissions, including combustion.)

Posco ‘offset’ the LNG cargo’s emissions by buying carbon credits generated from unspecified reforestation and renewable energy projects. The cargo, sourced from Australia, will be used to power some of Posco’s steel factories – with the resultant CO2 emissions released into the atmosphere unabated (which is OK because, y’know, Posco paid for more trees and turbines, right? 🤔)

Carbon offsetting is contentious* because emissions savings are hard to independently verify, lack universal standards and are thus open to abuse. Moreover, as the LNG industry comes to terms with its role in global heating, simply buying dubious offsets fails to demonstrate any commitment to address the huge emissions footprint of drilling for gas, liquefying it for overseas transit, regasification at the receiving end and end-use combustion.

There are incipient signs of change, with some developers of newbuild liquefaction projects promising to eliminate emissions by electrifying their facilities, powering them with renewables and sequestering any remaining CO2. Even some operational LNG plants could partially decarbonise fairly painlessly, particularly those fed by CO2-rich upstream gas; the CO2 must be separated from the gas stream prior to liquefaction in any case, so sequestering rather than venting it is a possible bolt-on.

Offsets will have a role in decarbonising LNG industry operations but only once all physical mitigation opportunities have been exhausted. And they shouldn’t be used to absolve emitters from their responsibility to release fewer emissions in the first place.

* If you were in any doubt about the integrity of the CO2 offsetting industry, look no further than appointment of Nigel Farage – the Brexit architect, Donald Trump acolyte, anti-wind and anti-immigrant agitator and ignominious ex-politician – to the board of a carbon offsetting company. (It seems U-turns by populist right wing institutions are all the rage; the histrionically anti-renewables Sun newspaper has just embraced ground source heat pumps over gas boilers, as part of the Murdoch newspaper’s new ‘Green Team eco revolution’. Yes, you read that right.)

Under the radar

Energy transition stories you might’ve missed
  • Norwegian offshore mining and minerals player Green Minerals goes public, amid rising demand for ethically-sourced rare earth elements that are key to the energy transition. Mining of resources required for electric vehicle batteries, solar panels and wind turbines is concentrated in “loosely-regulated mines in Democratic Republic of Congo”, according to Bloomberg. Green Minerals says the Norwegian Continental Shelf is home to $77 billion-worth of copper, zinc and other rare earths that could be mined without the disastrous socio-economic impacts often associated with onshore mining operations. No mention here of the impact on marine ecosystems 🤷🏻‍♂️

  • With half an eye on a post-oil future, Abu Dhabi National Oil Company launched the Murban crude oil futures contract on the Intercontinental Exchange (ICE). While creating a dedicated price for the United Arab Emirates’ flagship crude grade is primarily intended to boost oil trade transparency and flexibility, Murban futures will also help bolster the UAE’s emerging status as an energy hub. This is a core element of the Emirate’s wider economic diversification agenda, which has its roots in the clear need to shift away from fossil fuel export revenue dependency. The link is at best tenuous, however, and ADNOC itself sees “low carbon oil” as a key enabler of the energy transition. If oil is going to be at the heart of the global economy for decades to come then every little helps, or so the argument goes 🤨

  • UK government scraps energy efficiency grant scheme after just six months (source: gov.uk). The Green Homes Grant was plagued by weak supply chains and lack of skilled workforce, itself caused by “absence of a long-term policy on energy efficiency and low carbon heat for many years now”, according to sustainability NGO Aldersgate Group. Energy efficiency is among the low-hanging decarbonisation fruit and should be an easy win for the UK, a country with a notoriously leaky and wasteful housing stock and profligate energy consumption habits. Giving up on efficiency is not a great look ahead of hosting COP26 in November

  • Effects from Texas deep freeze ripple through the US gas market, with warning of soaring retail rates and “rip-off” utility deals in Illinois. Citizens Utility Board says several utilities are increasing residential gas prices by around 35-69% on 1 April, others luring in customers with enticing offers that cost more in the long run, to recoup losses stemming from February’s arctic blast that shuttered wells and froze gas pipelines

  • US power grid is ‘on the cusp of a battery boom’, regardless of how gas prices and renewables costs evolve. US Energy Information Administration sees 59 GW of storage capacity will be added to the grid by 2050 in its reference case, rising to 126 GW if natural gas prices are higher than assumed. If renewables and battery costs fall 40% more than in the reference case, storage capacity could hit 167 GW by mid-century (source: EIA AEO ’21)

  • Toyota seeks to spur hydrogen uptake by commissioning first solar-powered H2 production and refuelling station in Victoria, Australia. Commercial-grade outlet for commercial and passenger fuel cell electric vehicles (FCEVs) will produce up to 80kg of hydrogen per day. Toyota sees this as an “important step” in addressing lack of infrastructure hindering FCEV adoption. While this may well be true, many more H2 stations will be needed to mount a meaningful challenge to electric vehicle rollout in Victoria and other Oz states where renewables are providing an ever-greater share of the power mix

  • New Scottish floating wind project takes aim at local supply chain constraints. Project developer Simply Blue Energy and offshore contractor Subsea7 are designing Salamander floating wind project offshore Peterhead with focus on technology that can be “manufactured quickly with a high local content”. Scotland and the UK have a patchy record on capturing economic benefits from offshore wind, an unwelcome trend that Salamander hopes to reverse.

Energy perspectives

Critical thinking on crucial energy issues
  • ‘Australia's natural gas industry frets about supply. They should worry about demand’. Reuters columnist Clyde Russell questions industry mantra that an east coast gas supply shortfall is coming – an argument used to justify subsidies for drilling new wells. Rising domestic gas prices, increasing grid penetration of wind, solar and battery storage capacities and shifting household preferences for heating and cooking could shrink demand to the point where new resources need not be developed, Russell says

  • ‘Global coal demand surpassed pre-Covid levels in late 2020, underlining the world’s emissions challenge’. IEA senior energy analyst Carlos Fernández Alvarez provides a sobering reminder of just how far off-track the world is in curbing soaring coal consumption, with coal burn in power and industrial sectors rebounding strongly as countries emerged from lockdowns. “Changing this dynamic ... will require much stronger sustainable recovery plans from governments that urgently prioritise investments in clean energy technologies.” i.e. let’s #buildbackbetter

  • On that note, how should eastern Europe transition away from coal-fired district heating systems? The Europe Beyond Coal campaign describes the problem and offers a few pointers here. Spoiler alert: fossil gas is not the solution.

And finally...

Yes, she’s floating free! (Expect similar scenes on trading floors in London, Frankfurt and New York):

That’s all for today, tune in tomorrow for more of the same!

Thanks for reading,

Seb