Net Zero

1. BP boss out
2. Dodging the climate bill
3. 🟡 Shrugging off shutdowns
4. Solar glut
5. ESG returns
6. Human rights COP-out
7. 🟡 ‘The beginning of the end’
8. 🟡 Rocky geopolitics

BP boss out

Bernard Looney, CEO of BP, resigned on Tuesday following allegations of improper past relationships with colleagues. His departure leaves the company’s energy transition strategy uncertain. Looney pushed for BP to set ambitious carbon emissions targets and to compete in unfamiliar emerging markets like hydrogen and offshore wind. Those bets were unpopular with investors, and this year Looney rolled them back in favor of increased spending on oil and gas production. With a change in leadership — CFO Murray Auchincloss will take over as interim CEO — BP may reposition itself, like Shell, to compete more directly with U.S. majors ExxonMobil and Chevron on squeezing value from the waning years of fossil fuels.

Dodging the climate bill

Some of the world’s biggest carbon emitters, especially the U.S., are still failing to supply their fair share of international climate finance. More than a decade ago, wealthy countries agreed to raise $100 billion per year by 2020 to support climate adaptation and clean energy in developing countries. They’re still short at least $15 billion, depending on who’s counting. Under the U.K. think tank ODI’s math, the U.S. should pay about $43 billion of the overall target. But as of 2021, it has coughed up just 21% of that. Some European countries, meanwhile, are paying far more than their fair share. Left out of the analysis is China, which has strenuously resisted calls from Western leaders to join the climate finance donor pool.

A shutdown won’t end the US green boom

THE NEWS

The U.S. Congress returned from summer recess this week to the tune of a now familiar dance: averting a government shutdown. Caught up in the high-stakes debate is the future of the clean energy industry - but it might yet escape unscathed.

The Democrat-controlled Senate and Republican-led House remain billions of dollars apart on key spending measures ahead of the Sep. 30 deadline, suggesting the likeliest outcome is a short-term resolution that would buy Congress more time to negotiate but still leave a shutdown on the horizon. “A shutdown is more of a ‘when,’ not an ‘if’,” John Miller, managing director of ESG policy at TD Cowen said.

For climate and energy investors, there are two main risks. One is that Republicans force through amendments scaling back funding for the Biden administration’s climate agenda. The other, more likely, scenario is that a shutdown impedes energy-related tax credits in the Inflation Reduction Act.

TIM’S VIEW

The U.S. clean energy industry is no stranger to being subject to the whims of Congress. What’s different this time around is that budget negotiations are less threatening to the industry than ever. A shutdown, if one occurs, could hardly reverse the momentum the industry has built up over the last year.

The latest evidence is a report today from the Rhodium Group think tank and MIT on U.S. clean energy investment trends. $213 billion was invested by businesses and retail consumers in the year to June, the report found, in manufacturing and installing clean energy hardware. That’s 37% more than the previous 12-month period, and more than the annual GDP of 18 U.S. states, making clean energy one of the country’s biggest industries.

Manufacturing — investment in new factories to build solar panels, batteries, and more — was the fastest-growing segment, more than doubling from the previous year. That suggests investors aren’t all waiting for finalized Treasury guidance to forge ahead. Some of the key decisions that could be delayed by a shutdown have to do with manufacturing, as firms seek more clarity on the tax credit rates for building different types of solar inverter hardware or on how companies should assess what portion of a given widget is produced domestically. The manufacturing boom also provides a measure of political cover for the IRA overall, because a majority of this investment is happening in Republican-majority districts.

“We’ve all been dealing with those [tax] uncertainties as it is,” said Ken Rivlin, an attorney who advises companies on environmental regulation at the law firm Allen & Overy. “So I’m not overly worried about a short delay.”

Solar glut

Gigawatts of solar power that will be installed in China by 2026, according to Rystad Energy. That’s a doubling from today’s levels, which took 13 years to accumulate, in just three years. Not everyone is happy about China’s solar glut: This week a solar trade group in Europe complained to officials that competition with dirt-cheap Chinese exports is driving manufacturers there into bankruptcy. EU officials also announced they will investigate anti-competitive Chinese subsidies for the EV industry.

Green investing pays off

Companies with higher ESG ratings tend to outperform their lower-rated peers over the long run, according to a new analysis from the risk advisory firm Kroll. The analysis comprised more than 13,000 companies globally and tracked their annual returns since 2013. Overall, returns for companies with high ESG scores were about 4 percentage points higher than those with the lowest. The gap was even wider for U.S. companies, and for the utilities sector. ESG doesn’t seem to be working out as well for energy companies, possibly because some of those at the forefront of switching from a fossil fuel-driven business model to one focused on renewables have seen margins fall as a result. But even in energy, ESG leaders significantly outperform laggards.

Human rights COP-out

The fraught human rights record of the United Arab Emirates threatens to undermine the COP28 summit, a group of more than 200 environmental and human rights NGOs wrote in an open letter today. “We will oppose any attempt to use COP28 and our presence to greenwash this repressive government,” the group wrote, calling for the UAE to release prisoners of conscience, repeal laws criminalizing non-heteronormative sexuality, and pay reparations to workers who have worked under abusive conditions to prepare the COP venue. Similar issues arose during COP27 in Egypt, leading some prominent climate activists to boycott the event, but many Egyptian human rights activists welcomed the chance for a UN-protected venue in which to express their grievances to an international audience.

‘The beginning of the end’

New projections by the International Energy Agency are expected to show that fossil fuel demand may peak sooner than expected. IEA forecasts set to be released this week show demand for oil, gas, and carbon could begin to fall before the end of the decade. The IEA had estimated last year that demand would continue to rise until at least 2030, but a surge in renewable energy projects has led to the projected date being revised forward.

INSIGHTS

• “We are witnessing the beginning of the end of the fossil fuel era,” IEA head Fatih Birol wrote in a Financial Times oped, adding that “we have to prepare ourselves for the next era.” Russia’s invasion of Ukraine, which led to oil and gas prices soaring, prompted a rush of investment and government incentives — particularly in the U.S. and the EU — for renewable energy. The U.S. alone may invest hundreds of billions of dollars within the next decade. The quick turnaround “shows that climate policies do work,” Birol said.
• Despite surging production, renewable generation is becoming more expensive in the U.S., concerning environmentalists and making several projects inviable. After years of decline, the cost of generating green electricity has risen since 2021. The rise, driven largely by higher financing costs, component scarcity, and protectionist policies, has forced renewable developers to raise prices by as much as 30% this year alone. “We used to see the power price just drop year on year,” the head of a renewable energy investment firm said. “We’re not going back to that,” if interest rates stay high, he said.
• Although reaching peak oil demand would be an important signal that the renewable transition is occurring at a global scale, it is by no means enough to ensure that the world keeps to within 1.5 degrees Celsius above preindustrial levels. A key part in reducing oil demand is replacing the world’s car fleet: Road fuel vehicles alone account for roughly 45% of the global oil demand. There are positive signals, however. China became the world’s largest car exporter earlier this year, largely on the back of a surge in electric vehicle sales. Meanwhile in the U.S., leasing an EV became the cheapest option for new car buyers last month.

Watchdogs

A new U.S. strategy for securing supplies of critical minerals is emerging, with some of the same uncomfortable bedfellows that have defined the fossil fuel era. The U.S. is in talks with Saudi Arabia to essentially act as a backdoor supplier for U.S. industrial consumers of minerals like cobalt and lithium — crucial for EV batteries and other clean tech — produced in places like the Democratic Republic of the Congo, Equatorial Guinea, and Zambia, according to the Wall Street Journal.

The idea is that Saudi firms can operate more freely in countries that have mining industries with a track record of bribery and environmental and labor abuses, said Cullen Hendrix, senior fellow at the Peterson Institute for International Economics, a Washington think tank. And they can do so quickly, with plenty of cash on hand to invest in lucrative new mines, at a time when the U.S. is keen to both rapidly expand its supply of critical minerals and keep them out of the hands of China, which is also snapping up stakes in mining ventures across Africa and Latin America. For the Saudis, the deal is a kind of geopolitical insurance policy, a way to cultivate new forms of dependency by the U.S. as the influence of oil and gas fades in the coming decades.

Such deals may be necessary to boost the mineral supply, but they risk leaving the U.S. vulnerable to the same kinds of trade disruptions and price volatility that have long plagued the fossil fuel market. And they don’t solve the human rights problem. The U.S. relationship with Saudi Arabia is still damaged by the assassination of journalist Jamal Khashoggi. Vietnam, where Biden discussed another deal on minerals over the weekend, has meanwhile jailed several high-profile climate activists.

“The willingness of the U.S. to discuss this kind of deal with Saudi Arabia is a signal of the urgency,” Hendrix said.

• Behind closed doors, Wall Street and Washington are at odds over China.
• A top Senate Republican poured cold water on Trump’s latest corporate tax plan.
• X, Elon Musk’s social media platform formerly known as Twitter, appears to be attempting to limit its users’ access to The New York Times.