đ„Energy Fluxđ„ Tuesday, 30th March 2021
đ„Energy Fluxđ„ Tuesday, 30th March 2021
Big asset managers inflate ânet zeroâ expectations đHeavy emitters buy absolution via LNG âcarbon offsettingâ đ + LOTS more đ
Thereâs rarely a dull day in the world of energy and climate news. Crammed into todayâs issue:
Big asset managers inflate expectations with beefed-up ânet zeroâ pledges
Heavy emitters buy absolution as LNG âcarbon offsettingâ gains traction
Under the radar (lots of energy transition stories you mightâve missed)
Energy perspectives (critical thinking on crucial energy issues)
Big asset managers inflate expectations with beefed-up ânet zeroâ 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 representingâŻoverâŻ$22.8âŻtrillion of assets under management are promising just that, after committing to ânet zeroâ emissions by 2050 and â crucially â 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, representingâŻ$32 trillion in assets under management (equivalent to 36% of the global total, according to the initiativeâs organisers).
Signatories pledge to:
work with âclients on decarbonisation goals, consistent with an ambition to reach net zero emissions by 2050 or sooner across all assetsâ
set interim targets for % of assets to be included in this effort
review these targets at least every five years, âwith a view to ratcheting up the proportion of AUM covered until 100% of assets are includedâ
But letâs 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 ânet zeroâ 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 âhypocrisyâ 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 donât.
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 canât 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 â mostly thanks to the underperformance of oil stocks. This is somewhat encouraging, as it means fiduciary duty shouldnât cloud the judgment of asset and fund managers seeking net zero alignment.
Heavy emitters buy absolution as LNG âcarbon offsettingâ 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 âcarbon-neutralâ liquefied natural gas from Germanyâs 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 âoffsetâ the LNG cargoâs 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 Poscoâs steel factories â with the resultant CO2 emissions released into the atmosphere unabated (which is OK because, yâknow, Posco paid for more trees and turbines, right? đ€)
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 shouldnât 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 â the Brexit architect, Donald Trump acolyte, anti-wind and anti-immigrant agitator and ignominious ex-politician â 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 newspaperâs new âGreen Team eco revolutionâ. Yes, you read that right.)
Under the radar
Energy transition stories you mightâve 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 âloosely-regulated mines in Democratic Republic of Congoâ, 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 đ€·đ»ââïž
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 Emiratesâ flagship crude grade is primarily intended to boost oil trade transparency and flexibility, Murban futures will also help bolster the UAEâs emerging status as an energy hub. This is a core element of the Emirateâs 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 âlow carbon oilâ 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 đ€š
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 âabsence of a long-term policy on energy efficiency and low carbon heat for many years nowâ, 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 ârip-offâ 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 Februaryâs arctic blast that shuttered wells and froze gas pipelines
US power grid is âon the cusp of a battery boomâ, 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 â21)
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 âimportant stepâ 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 âmanufactured quickly with a high local contentâ. 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
âAustralia's natural gas industry frets about supply. They should worry about demandâ. Reuters columnist Clyde Russell questions industry mantra that an east coast gas supply shortfall is coming â 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
âGlobal coal demand surpassed pre-Covid levels in late 2020, underlining the worldâs emissions challengeâ. IEA senior energy analyst Carlos FernĂĄndez 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. âChanging this dynamic ... will require much stronger sustainable recovery plans from governments that urgently prioritise investments in clean energy technologies.â i.e. letâs #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, sheâs floating free! (Expect similar scenes on trading floors in London, Frankfurt and New York):
Thatâs all for today, tune in tomorrow for more of the same!
Thanks for reading,
Seb