Net Zero

1. ‘We dug our own grave’
2. The first ‘megamajor’
3. Greenwashing crackdown
4. Tracking bank emissions
5. Loss and damage stalemate
6. AI vs. traffic
7. Graphite grab
8. Tax credit market heats up

‘We dug our own grave’

Tesla’s third-quarter earnings fell short of analysts’ expectations, with the company’s profit margin falling to its lowest point since early 2019. CEO Elon Musk has spent months slashing prices in a bid to cling to market share. The company is slowing down development of its new factory in Mexico, Musk said, and pushing out the schedule for production of its Cybertruck pickup. “We dug our own grave” on the Cybertruck, Musk said in a call with investors, referring to its stainless steel body that has proven hard to manufacture at scale. Meanwhile, General Motors also delayed the opening of a factory for its EV pickup, a sign of the company’s uncertainty about demand for electric trucks. In better EV news, Amazon said it has doubled the size of its electric delivery van fleet since July, to 10,000.

The first ‘megamajor’

ExxonMobil’s acquisition of shale producer Pioneer Natural Resources puts the company’s oil production capacity in a league of its own, according to Wood Mackenzie data. By 2030, its oil production will be 37% higher than the second-highest major, making it the world’s first “megamajor” and “marking a new phase of increasing strategic differentiation between the U.S. and European majors,” Tom Ellacott, Wood Mac’s senior vice president of corporate research, said in a note. Ellacott predicts that Chevron and ConocoPhillips may be next in line to snap up other smaller independent producers. The acquisition also entrenches Exxon’s already-considerable lobbying power: an expert wrote in The New York Times this week that it will “undermine democracy in the United States, mislead investors, and weaken market competition.”

The coming ‘greenwashing’ crackdown

THE SCOOP

A crackdown on greenwashing is coming.

Global regulators are increasingly turning their attention to allegations of misleading climate advertising, and warn action is imminent.

Top officials in both the U.K. and Australia separately told Semafor that they were readying new legal frameworks and punishments for companies found guilty of greenwashing.

The head of investigations at Britain’s advertising watchdog said his office was holding “live discussions” with the government and the country’s antitrust regulator to outline rules defining how businesses could use terms such as carbon neutral and net zero in their advertising and corporate statements. The U.K.’s Advertising Standards Authority will also make a focus on climate change a multi-year priority in a new strategy to be published next month, Miles Lockwood added.

Australia’s joint antitrust and advertising watchdog, meanwhile, plans to issue its first “enforcement action” against companies for greenwashing violations in early 2024, Gina Cass-Gottlieb, the chair of the Australian Competition and Consumer Commission said, though she did not say what that action would entail.

“There is a lot of very valuable engagement between the consumer protection enforcement agencies worldwide,” Cass-Gottlieb said. “There is a very close focus on this.”

PRASHANT’S VIEW

The core question over greenwashing is one of language.

What does it mean to be “carbon neutral” or to have a “net zero” plan — aside from making time to read this newsletter? Even “greenwashing” doesn’t have a precise definition. In recent conversations with analysts, officials, and sources, I’ve often had to pause interviews to clearly outline what we each understand by the terms we’re discussing. Not all of them have universally agreed-upon definitions, even within broad climate circles, and those that do often come with caveats or require additional explanation.

Can you only be “net zero,” for example, if your carbon emissions are, in fact, zero? What if you maintain your carbon emissions at their current level, but purchase an equivalent value of carbon-removal credits or offsets? What if you’re somewhere in between? If those in the climate-focused business, journalistic, and governmental community cannot agree, how can everyday consumers be expected to understand the terms?

Enter the regulators. Multiple surveys indicate both that consumers lack a deep understanding of the terminology companies use in their advertising, and that businesses make green claims they cannot back up: A European Commission study in 2020 found that more than half of all examined environmental claims were vague, misleading, or unfounded.

Across the rich world, watchdogs are taking notice, and beginning to police the precise language companies use to describe their emissions-cutting and environmental efforts.

And in this case, the words being used — or misused — have a real-world impact: research published in Harvard Business Review last year examining more than 200 publicly traded large U.S. companies found that firms perceived by their customers to be greenwashing have markedly lower customer-satisfaction scores, and were linked to lower earnings per share and reduced return on investment. (Interestingly, this applied less to companies with products perceived to be of higher quality.)

Glossary

A growing number of financial institutions are using EER as a factor in their investment decisions, Bloomberg reported this week. The metric essentially functions as a negative number they can deduct from their overall carbon footprint — especially investments in decarbonization projects at oil companies, steel manufacturers, and other high-emitting companies, since any increased investment in such companies would otherwise cause the bank’s total carbon footprint to go up. The problem, activists say, is that the EER measure relies on an “unknowable counterfactual baseline” and could become a tool for greenwashing.

Loss and damage stalemate

With just over a month until COP28, diplomats hit a stalemate over how to set up the climate reparations fund that was established last year at COP27. At a meeting in Egypt this week, a loss and damage committee that includes representatives from wealthy and developing nations was meant to finalize the details of how the fund would be financed and administered. Instead, as of Friday afternoon, they remained stuck on an insistence from the U.S. delegation that the fund be housed at the World Bank, which Pedro L. Pedroso Cuesta, a Cuban diplomat representing the G77, said in a press conference was unacceptable because it would raise too many bureaucratic barriers for climate-impacted countries to access the money. “We’re confronted with an elephant in the room, and that elephant is the U.S.,” he said.

Disagreements also remain about whether the fund will be available only to the poorest countries, and whether middle-income countries like China and Saudi Arabia will be obligated to pay in. In short, odds are slim that the fund will be opened anytime soon.

One Good Text

Kate Brandt, chief sustainability officer of Google.

Graphite grab

China imposed new restrictions on the export of graphite, a critical material for EV batteries. China is the world’s top graphite producer; the U.S. is the top importer. Starting Dec. 1, importers will need a license to acquire Chinese graphite, including synthetic and natural versions. The move follows the Biden administration tightening exports of AI chips to China, and promises to accelerate both the clean energy trade war between the countries and the race by automakers to secure non-Chinese sources of graphite.

Green Shoots

The brand-new market for clean-energy tax credit transfers is heating up. The Inflation Reduction Act not only expanded the availability of clean-energy tax credits, but for the first time allowed them to be sold by developers of renewable energy projects to anyone — a bank, a company, a person — looking to write a few million dollars off their taxes. The idea was to create a revenue stream for midsized projects that didn’t have enough tax liability to make use of the full credits themselves, and couldn’t tap the small and hard-to-access pool of tax equity financing from banks.

After a slow start, dozens of deals — some for tens or hundreds of millions of dollars — have been completed just in the last few weeks or are in progress, attorneys and brokers involved in the new market told Semafor. “There’s going to be quite a lot of deal activity in the last four months of the year,” said Alfred Johnson, CEO of Crux, a platform for tax credit trading that launched in April.

Because of the long lead time needed for financing renewable energy projects, some that are in mature stages of development already have their financing locked, and thus aren’t shopping their credits, Johnson said, leading to a mismatch of supply and demand: “There’s more interest in buying the credits than a lot of people anticipated, so right now it’s a strong market for the reasonably thin volume of credits currently available.” That’s driving prices up, with some credits selling for as much as $0.96 on the dollar (i.e., a four-cent deduction per dollar of the purchaser’s taxes), according to Crux. Prices are likely to fall as time goes on and more sellers enter the market — according to Credit Suisse, nearly $600 billion in tax credits could be monetized through the market by 2031.

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