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Week 19: A climate reality check
In this issue: ▸ The Net-Zero Concert ▸ Reality Inc. ▸ The Game Inc. ▸ The Commitments Inc. ▸ The Reality Check Inc.
One, two. One, two. Testing. A shrieking voice singing the same mantra. Net-Zero, Net-Zero. Then the music kicks in, drums and fanfare. By 2050, by 2050. The audience is amazed and touched. The chorus of politicians is standing firm clapping in the same rhythm.
Behind the stage, right where the curtains touch the blank and shiny floor of the stage, the business leaders. They add an extra chorus with their merry little voices, clear and strong. Profits, profits, profits.
The audience sinks into a slow trance. The voices, the setting, the dimmed lights. All of it just so mesmerizing, and so unreal.
Decarbonization by 2030 or 2050? Really? What’s the point of setting goals which cannot be achieved? People call it aspirational. It is rather delusional. We are building more and bigger of everything, and now we call it green. But do we need more and bigger?
I’m not against setting a goal. I’m all for realistic goals. Lofty goals are misleading and don’t serve a cause because we will not achieve them. And people will end up saying “what’s the point, anyway?”
Instead, we need to be realistic in relation who we are and where we are. Right now, we live in this world of exaggerated promises and delusional techno-pop science promising to save us all. For more than 30 years, global warming has been making headlines. We’ve been aware of this for 30 years, on a planetary scale, all those IPCC meetings. And yet, our emissions have been going up steadily every year.
So here’s the question: Why haven’t we done anything? Why do we keep saying it’s a catastrophic problem but do nothing about it?
In an ideal world, we could cut our emissions if we put our minds to it. But the point is that it has to be done by all the actors in the Net-Zero concert above. Why is it so damn hard?
Suppose we started investing like crazy and began bringing down our carbon emissions as rapidly as possible. The first beneficiaries would be the people living in the 2070s because of what’s already in the system. The temperature would keep rising even as we are reducing these emissions. So we are asking people now to make quote-unquote sacrifices while the first benefits will accrue to their children and the real benefits will accrue to their grandchildren.
We have to redo the basic human wiring in the brain to change this risk analysis and say, we value 2055 or 2060 as much as we value tomorrow. None of us are wired to think that way. We are messy, hard-to-define we. We are subject to fashions and whims, this is the beauty of humanity.
Most of us are trying to do the right things with climate, but it is difficult when you have to move on the energy front, food front, materials front. People have to realize that this problem is unprecedented because of the numbers and scale, billions of everything and at the same time the pressure of acting faster than we ever acted before. This doesn’t make it hopeless, but it makes it so utterly difficult.
Yes, we do have a problem. Is it going to be the end of the world by next Monday? No, I don’t think so.
There are billions of people who want to burn more fossil fuels. There is very little we can do about that. They will burn it unless we give them something different. But who will give them something different?
We have to recognize the realities of the world, and the realities of the world tend to be unpleasant, discouraging and depressing. One example is Germany. After investing nearly half a trillion dollars over the course of 20 years they went from getting 84 percent of their primary energy from fossil fuels to now 76 percent.
So how will Germany – a country with 83 million people and half of its industry depending on gas – move from 76 percent fossil to zero by 2030 or 2035?
I’m sorry, the reality is what it is.
On that note, the world’s biggest companies are on track to commit a collective $387m dollars a day of capital expenditure to exploiting oil and gas fields through to 2030.
Yes, it’s true, the fossil fuel industry’s short-term expansion plans involve the start of oil and gas projects that will produce greenhouse gases equivalent to a decade of CO2 emissions from China, the world’s biggest polluter.
These plans include 195 carbon bombs, gigantic oil and gas projects that would each result in at least a billion tonnes of CO2 emissions over their lifetimes, in total equivalent to about 18 years of current global CO2 emissions. About 60% of these have already started pumping.
The dozen biggest oil companies are on track to spend $103m a day for the rest of the decade exploiting new fields of oil and gas that cannot be burned if global heating is to be limited to well under 2C.
The Middle East and Russia often attract the most attention in relation to future oil and gas production but the US, Canada and Australia are among the countries with the biggest expansion plans and the highest number of carbon bombs.
The US, Canada and Australia also give some of the world’s biggest subsidies for fossil fuels per capita.
The short-term expansion plans of oil and gas companies, such as ExxonMobil and Gazprom, are colossal. In the next seven or so years, they are likely to start producing oil and gas from projects that would ultimately deliver 192bn barrels. As mentioned, it’s the equivalent of a decade of today’s emissions from China. Read more.
When BP reported its quarterly earnings in a presentation to financial institutions in February, one analyst said he “really enjoyed the camaraderie and the positivity that you’re generating”, before asking about the company’s cash position.
“We’ve given you a lovely little chart,” said Murray Auchincloss, BP’s chief financial officer. “Certainly, it’s possible that we’re getting more cash than we know what to do with. For now, I’m going to be conservative and manage the company as if it’s $40 [a barrel] oil. Anything we could get above that just helps, obviously.”
At the time, the oil price exceeded $90. Today it is $106. The oil industry is awash with cash. The money companies have belongs to shareholders, including pension funds, or in the case of national oil companies, to governments and, in theory at least, citizens.
But the investment plans of the biggest oil companies are sharply at odds with the goal of halting the climate crisis. This is our shared reality.
The Game Inc.
In a report in September, the Federal Reserve Bank of New York said that, if banks together suffer losses following a sudden change to the physical or transition risks posed by climate change, that “poses a considerable risk to the financial system”.
Under the climate stress scenario applied in that report, for example, Citigroup, one of the largest financiers to fossil fuel businesses, would need to raise $73bn to maintain an adequate capital cushion.
In March, the US Securities and Exchange Commission also unveiled proposed rules that would require companies, including banks and other financial services groups, to disclose more information about their climate risks.
The rules would require big banks to disclose their “Scope 3” emissions, which include carbon emitted by their entire financing portfolios. For example, the emissions from a steel plant with a bank loan would probably be included in that bank’s Scope 3 tally. This need to disclose a broader measure of emissions has set off alarm bells inside banks.
Scope 3 disclosure is a worry for banks on three fronts: First, the banks are afraid of rising regulatory costs associated with counting up all the carbon in their lending businesses. Second, banks see reputational risk lurking in the publication of these emissions as big Scope 3 numbers could brand banks as enablers of massive pollution and could put them at a disadvantage. Third, and perhaps most importantly, banks are also concerned that bad Scope 3 figures could invite a carbon tax or other financial burdens on them, as well as on their clients.
The SEC’s proposed rules would require banks to disclose their internal carbon prices, too, posing a similar problem to the Scope 3 figure. These concerns have prompted the banks’ lobbyists in Washington to gear up for a fight at the SEC. Read more.
And here is how it goes: While speaking about energy policy in Texas, former Vice President Mike Pence, a potential 2024 Republican presidential contender, said he wanted to “rein in” ESG principles.
He is not alone. Some notable names are pushing back as businesses get increasingly tangled up in cultural and political fights, and as the federal government builds ESG principles into regulations.
A new financial firm, Strive, started by Vivek Ramaswamy, the author of “Woke, Inc.,” and backed by the billionaire investors Peter Thiel and Bill Ackman, has a similar mission: It will urge companies not to get involved in social, political or environmental issues.
The SEC is feeling the pressure. This week, the agency extended the public comment period on the proposed new climate disclosure rules without explanation. The move came days after Republicans on the House Financial Services Committee demanded a hearing with the commissioners, accusing the SEC of overreach and of relying on “short and overlapping comment periods” to push “a scorched earth rule-making agenda.” Read more.
The Commitments Inc.
"We will continue to invest in and support fossil fuel companies, including Texas fossil fuel companies," states a memo signed by Dalia Blass, BlackRock’s head of external affairs, and copied to Mark McCombe, BlackRock’s chief client officer.
At the risk of being dropped from Texas pension funds, BlackRock Inc. has ramped up its message that the world’s largest asset manager is a friend of the oil and gas industries. BlackRock said it will likely vote to support fewer climate proposals from companies in its investment portfolio in 2022 than it did in 2021.
In 2021, BlackRock voted in favour of 47% of environmental and social shareholder proposals (81 of 172). BlackRock will not vote for company changes that “in our assessment, implicitly are intended to micromanage companies,” the note said. Read more.
The Reality Check Inc.
Let’s end this week’s newsletter with a reality check:
Are global CO2 emissions decreasing? No
Is current global political action on Climate Crisis making tangible progress? No
Are global business leaders treating the Climate Crisis with the sense of urgency it deserves? No
Are the biggest global financial institutions truly committed to change their way of investing and lending? No
Are we transforming our global economic system, the dark side of it, the inequalities it creates, the depletion it causes? No
Are we, the global multitude of souls, really up for a fight that will, maybe, create fewer CO2 emissions in 2050 to decrease temperatures and avoid the horrific implications for our children and grandchildren? Not really
Can we do something about it? Yes
Can we do it now? Yes
Aspirational or delusional. It sits with us. All of us. We vote, we consume, we invest, we own, we relate, we feel, we hurt, we love, we cherish.
“Humankind has not woven the web of life. We are but one thread within it. Whatever we do to the web, we do to ourselves. All things are bound together. All things connect. The earth does not belong to man, man belongs to the earth. All things are connected like the blood that unites us all.” – Chief Seattle
That will be all for today. Have a great real week!