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Week 7: Facts, deception, money and politics
In this issue: ▸ Life goes on ▸ 6% rise in global electricity demand ▸ Big oil all talk, no action ▸ BlackRock, Vanguard and coal ▸ The damaging subsidies ▸ And much more...
Positive. That word keeps coming back to me like a hammer. Some days I write it down repeatedly in my notebook, or I just repeat it for myself in my head while walking in the street. A kind of mediation. I’m forcing myself to see what I cannot see. Encouraging my brain to shift gears, to embrace the flow of possible. Telling “me” that “me” needs to evolve, that “me” is too deep down in the dark alleys of our reality.
Life goes on. Despite the fact that we are heading towards a Molotov cocktail of dangers. Life goes on despite all the hypocrisy, despite all the empty words. We prevail. Out of fear, greed or hope. Maybe faith as well. It is emotional. Far more emotional than we can comprehend.
In the shelter rooms during the shelling in the war in Bosnia and Herzegovina most people were quiet. A few were crying or screaming, but most of the time a silence was hanging on the walls and lying on the floors. Now and then you could hear someone comforting a child, saying that everything will be alright.
Everyone was thinking that if a shell hits this shelter then it will most likely not kill me. It’s primal. “I” will survive. Still, one thing that also happens in situations of such existential importance for everyone in that shelter, is that there’s a common understanding that this is bad for everyone.
The strange thing that we are facing nowadays is that the further we are descending into the uncharted territory of the changing climate which will impact billions, the less we agree on the danger it poses to all of us. Our inability to tune into the “common understanding” of what we are facing is stunning.
Positive. The word echoes in my head. But does it really matter?
Driven by the rapid economic rebound, and more extreme weather conditions than in 2020, including a colder than average winter, last year’s 6% rise in global electricity demand was the largest in percentage terms since 2010 when the world was recovering from the global financial crisis.
In absolute terms, last year’s increase of over 1,500 terawatt-hours was the largest ever, according to the January 2022 edition of the IEA’s semi-annual Electricity Market Report. Around half of last year’s global growth in electricity demand took place in China, where demand grew by an estimated 10%. China and India suffered from power cuts at certain points in the second half of the year because of coal shortages.
Electricity produced from renewable sources grew by 6% in 2021, but it was not enough to keep up with galloping demand. Coal-fired generation grew by 9%, serving more than half of the increase in demand and reaching a new all-time peak as high natural gas prices led to gas-to-coal switching. Gas-fired generation grew by 2%, while nuclear increased by 3.5%, almost reaching its 2019 levels. In total, carbon dioxide (CO2) emissions from power generation rose by 7%, also reaching a record high, after having declined the two previous years.
Emissions from electricity need to decline by 55% by 2030 to meet our Net Zero Emissions by 2050 Scenario. But in the absence of major policy action from governments, those emissions are set to remain around the same level for the next three years…
The energy products of oil and gas majors have contributed significantly to global greenhouse gas emissions (GHG) and planetary warming over the past century. Decarbonizing the global economy by mid-century to avoid dangerous climate change thus cannot occur without a profound transformation of their fossil fuel-based business models.
Recently, several majors are increasingly discussing clean energy and climate change, pledging decarbonization strategies, and investing in alternative energies. Some even claim to be transforming into clean energy companies. Given a history of obstructive climate actions and “greenwashing”, there is a need to objectively evaluate current and historical decarbonization efforts and investment behaviour.
A recently published study focuses on two American (Chevron, ExxonMobil) and two European majors (BP, Shell). Using data collected over 2009–2020, the study comparatively examined the extent of decarbonization and clean energy transition activity from three perspectives:
keyword use in annual reports (discourse)
business strategies (pledges and actions)
production, expenditures and earnings for fossil fuels along with investments in clean energy (investments)
The study found a strong increase in discourse related to “climate”, “low-carbon” and “transition”, especially by BP and Shell. Moreover, the financial analysis reveals a continuing business model dependence on fossil fuels along with insignificant and opaque spending on clean energy.
Based on this, the study concludes that the transition to clean energy business models is not occurring, since the magnitude of investments and actions does not match the discourse. Until actions and investment behaviour are brought into alignment with discourse, accusations of greenwashing appear well-founded.
Meanwhile, America’s biggest coal mining companies have enjoyed profit bonanzas over the past week, notching up some of their best results in decades as they enjoy resurgent demand and soaring prices. Peabody Energy, the world’s largest private sector producer, reported its most profitable quarter on record. Arch Resources, the next biggest, posted its best results since large asset sales five years ago.
“These are prices that we’ve never seen, frankly, in 20-plus years,” Paul Lang, Arch’s chief executive, told investors on Tuesday. “It’s an amazing position to be in.”
Volumes of coal burnt in power stations jumped an estimated 20% last year to 503mn short tonnes, the first annual rise in coal generation since 2014, according to the EIA.
This helped drive energy-related carbon emissions up more than 6% in 2021. Coal emits roughly double the carbon dioxide of natural gas when burnt.
Between January 2019 and November 2021, 376 commercial banks provided USD 363 billion in loans to the coal industry. Among these, just 12 banks accounted for 48% of total lending to coal companies.
The two largest institutional investors in the coal industry are the US investment giants BlackRock and Vanguard, with share and bond holdings of respectively USD 109 billion and USD 101 billion.
According to research by a large group of NGOs, commercial banks channelled over USD 1.5 trillion to the coal industry between January 2019 and November 2021. “Our research displays all corporate lending and underwriting for [coal] companies (…), but excludes green bonds and financing that is expressly directed towards non-coal activities,” explained Katrin Ganswindt, head of financial research at Urgewald.
The research has led to the creation of The Global Coal Exit List which covers 1,032 companies. Their activities range from coal mining, trading and transport to the conversion of coal to liquids, the operation of coal-fired power stations and the manufacturing of equipment for new coal plants.
“Banks like to argue that they want to help their coal clients transition, but the reality is that almost none of these companies are transitioning. And they have little incentive to do so as long as bankers continue writing them blank checks,” said Ganswindt.
As for the banks, they don’t want to be tied down by regulation and supervision. Ever since the 2008 financial crisis, the Basel Committee on Banking Supervision has been closely watched as a standard-setter for global banking risk surveillance. So it makes sense that banks are now getting anxious about how Basel will take on climate concerns. In November, BCBS proposed principles for supervising climate-related financial risks – a guidance that recommended bank supervisors to consider including climate threats in stress testing.
The Financial Services Forum, chaired by Goldman Sachs chief David Solomon, said in a letter to Basel that “we strongly oppose climate stress testing that could potentially impact banks’ regulatory requirements. It would be inappropriate for any kind of climate scenario analysis or stress testing to potentially lead to adverse regulatory consequences for banks,” the lobbying group said in a February 14 letter.
The world is spending at least USD 1.8 trillion every year, equivalent to 2% of global GDP, on subsidies that are driving the destruction of ecosystems and species extinction, find new research commissioned by The B Team and supported by Business for Nature.
The study is the first in over a decade to provide an estimate of the total value of environmentally harmful subsidies (EHS) across key sectors. It finds that the fossil fuel, agriculture and water industries receive more than 80% of all environmentally harmful subsidies per year, depleting natural resources, degrading global ecosystems, and perpetuating unsustainable levels of production and consumption, in addition to exacerbating global inequalities.
USD 640 billion of support a year is received by the fossil fuel industry, contributing to climate change, air and water pollution, and land subsidence.
USD 520 billion of subsidies a year finances the agriculture industry. The environmental damage of unsustainable agricultural activities includes soil erosion, water pollution, commodity-driven deforestation, greenhouse gas emissions, conversion of natural habitats and consequent biodiversity loss.
USD 350 billion a year flows to the unsustainable use of freshwater and the management of water and wastewater infrastructure, contributing to water pollution and risks to ecosystems in waterways and the ocean.
Also, other new research has found that lifting hundreds of millions of people out of “extreme poverty” – where they live on less than USD 1.90 per day – would drive a global increase in emissions of less than 1%, according to new research.
Wealth and income are disproportionately distributed among the global population. This has direct consequences on consumption patterns and consumption-based carbon footprints, resulting in carbon inequality. Due to persistent inequality, millions of people still live in poverty today.
On the basis of global expenditure data, the researchers computed country- and expenditure-specific per capita carbon footprints with unprecedented details. They showed that some people can reach several hundred tons of CO2 per year, while the majority of people living below poverty lines have yearly carbon footprints of less than 1 t CO2.
Reaching targets under United Nations Sustainable Development Goal 1, lifting more than one billion people out of poverty, leads to only small relative increases in global carbon emissions of 1.6–2.1% or less. Nevertheless, carbon emissions in low- and lower-middle-income countries in sub-Saharan Africa can more than double as an effect of poverty alleviation.
The study concludes that to ensure global progress on poverty alleviation without overshooting climate targets, high-emitting countries need to reduce their emissions substantially.
That’s all for this week.