Category: Environment (Page 1 of 3)

WCM Chart of the Week for April 14, 2022

April 14, 2022 / Mark Sloss

Let’s talk about something that proves that short-sighted or wrong-headed decisionmaking in ESG is bipartisan. One of the incredibly unfortunate halo effects of the Ukraine conflict is the global food shortage caused by Europe’s breadbasket being at war and the sanctions limiting access to Russian natural gas (key source for fertilizer). In addition to placing at risk a large percentage of the world population that are already nutritionally insecure, it has the effect of driving up commodity and food prices in the developed West. As we have discussed in prior blogs and newsletters, the conflict has also destabilized the petroleum market because of Russia’s role as a petrostate. The US is effectively energy independent, or nearly so if we look at all of North America together, but no question energy prices are higher. So what’s an American to do in the face of a global food and energy crisis? The US administration has an answer – put food in your gas tank. The decision to move to E15, 15% anhydrous denatured alcohol in the fuel mix, for the Summer arguably makes the whole situation worse. Referring to the US Energy Information Administration, the ASTM D4806 specification for ethanol compatible with spark-ignition engines is produced by “fermenting the sugar in the starches of grains such as corn, sorghum, and barley, and the sugar in sugar cane and sugar beets”. The first chart is from the USDA Foreign Agricultural Service and shows just how material Ukraine is to the global food supply. The second from the USDA statistics service shows already how much US corn production goes to fuel. There is a whole additional discussion to be had about the sense or senselessness of grain and cane crops being turned into fuel, from the energy intensity of the chemical conversion to the natural gas used to make fertilizer to the diesel burned for farm equipment to the climate costs of unsustainable monocrop farming practices that strongly suggests shortening the path from drill bit to burner tip is more efficient. But right now, we are focusing on the fact the US could (profitably) ameliorate rising food scarcity and prices with the same agricultural products it is planning to ferment and burn to save 10 cents on a $5 gallon of gas at the pump.

WCM Chart of the Week for April 4, 2022

April 4, 2022 / Mark Sloss

With the release of “Climate Change 2022: Mitigation of climate change”, which is the third segment of this year’s sixth assessment report (AR6) from the IPCC, most of the attention will be focused again on the doomsday charts. One of the notable ones in the press packet is entitled “We are not on track to limit warming to 1.5 (deg) C.” But, the report is surprisingly optimistic in one very critical sense – it declares the problem addressable if global action is taken promptly and capital is called in off the sidelines to drive a transition in energy, land use, industry, urban zones, buildings and transportation that could halve GhG emissions by 2030. At this point the debate then usually swings to the nature of capitalist systems and that capital will flow to where it can be used most efficiently and to greatest effect (e.g. risk-adjusted return), and there it stops. Advocates for changing policy on climate will trot out the “if we don’t act we’ll all die and your money won’t mean anything” argument, having failed to learn that existential threats don’t tend to deter markets until they become existential realities, supporting a party-like-it’s-1999 mentality. However, one slide in the press packet which probably won’t get much attention actually holds the key to activating capital entitled “(In some cases) costs for renewables have fallen below those of fossil fuels.” This is profound in that it doesn’t require the rest of the science or policy or existential concerns to affect the flow of capital. It is simply becoming cheaper to convert today’s sunshine and wind into electricity and shove it into batteries than to dig up fossilized sunshine from more than 65 million years ago and burn it. Even with investment and innovation in efficiency, modern society will continue to be increasingly energy intensive, and as more of the world’s population joins the middle class, utilization will become even more widespread. Intelligent allocators of capital will pursue the cheaper inputs that will meet that demand.

The Doomsday Glacier — It’s Not a Bond Villain’s Plot. It’s Worse.

March 31, 2022 / Mark Sloss

While many other things dominated the headlines from the Russian/Ukrainian conflict to inflation and policy response to COVID-19 Omicron part deux, something that was considered mostly unthinkable by scientists happened in Antarctica. According to the US National Ice Center (https://usicecenter.gov/PressRelease/IcebergC38): “(USNIC) has confirmed that iceberg C-38… has calved from the Conger Ice Shelf in the Wilkes Land Region of Antarctica. As of March 17, C-38 was centered at 65° 40′ South and 102° 46′ East and measured 16 nautical miles on its longest axis and 10 nautical miles on its widest axis. C-38 comprised virtually all that remained of the Conger ice shelf, which was adjacent to the Glenzer Ice Shelf which calved last week as iceberg C-37.” Eyes had been on another part of Antarctica over concerns about the potential collapse of the so-called “Doomsday glacier” — Thwaite’s glacier. But, Conger beat Thwaite to the punch with a break-away described as nearly the size of Los Angeles. Our attached chart from NOAA NCEI chronicles the decline in global sea ice just since 1979. When split into hemispheres, Northern loss is faster at -2.68% vs. “only” -0.33% for Southern (decadal trend). The fact Conger collapsed and Thwaite’s is trying is deeply concerning because it illustrates just how fragile the system is. Failure to adjust climate-changing activities and to start building resiliency and adaptation into industries and communities poses real threats to economic stability and prosperity and the performance of investments over a shorter-term horizon than many expect.

WCM Chart of the Week for February 22, 2022

February 22, 2022 / Mark Sloss

This week we get to take a break from talking about inflation to talk about… inflation. Although, in this case, what effects Russia’s moves on Ukraine might have. Russia’s economy is the 11^th largest in the world as measured by nominal GDP, which seems significant until we realize it is smaller than Canada’s and 1/10 the size of China’s. Ukraine is 55^th. Where Russia is most consequential in terms of their economy on the world stage is energy – petroleum and natural gas. Europe is a net importer of natural gas, a significant portion but not all of which comes from Russia. They have been increasing LNG imports from the US and Qatar, but that is mostly offset by a steady decline in domestic production. Natural gas is not the only major piece of the European energy portfolio, but it is material. Prices have already been high, and the decision to delay certifying Nord Stream 2 in response to Russian aggression means little relief is on the way. Globally, “OPEC+” has been falling short of targets to increase production post-COVID wind-down and the Ukraine conflict will not help climbing prices for oil either. The West is putting the framework for a new sanctions regime in place but that will mostly be about deciding who takes what share of the economic pain to box out Russia. Rising oil prices have similar effects on the economy as rising interest rates, so we are interested to see how the Fed digests the changing macroeconomic environment and the need to be aggressive on policy rates later in the year. Looking longer term, assuming the priority does not become preventing total war as Putin tries to reassert the borders of the former Soviet Union, we see this moment as a tipping point for Europe to accelerate their transition to a low-carbon future because it is an undeniable security imperative for the EU member states. [Sources: US Energy Information Administration https://www.eia.gov/todayinenergy/detail.php?id=51258 and McWilliams, B., G. Sgaravatti, G. Zachmann (2021) ‘European natural gas imports’, Bruegel Datasets, first published 29 October, available at https://www.bruegel.org/publications/datasets/european-natural-gas-imports/]

Charting COP-26 — I know you are disappointed

November 15, 2021 / Mark Sloss

“I know you are disappointed”. That was UN Secretary General Gutteres’ message to “young people, indigenous communities, women leaders, and all those leading the charge on climate action” as COP-26 adjourned in Glasgow. From the perspective of those four groups, representing rather a large percentage of the planet’s population, “disappointed” might be the diplomatic understatement of this century as they cling to the edge of an existential cliff. Can an institution that by design is meant to move (extremely) slowly and deliberately and with total consensus actually address something with this much urgency?

Perhaps the issue is one of framing. From the UN’s perspective, if they were presented with an international conflict where food systems were to collapse, millions of lives were to be at risk, millions were to become refugees, hundreds of billions of dollars of infrastructure were to be destroyed, and this catastrophe would know no borders and respect no nation, law, or military might, what would it do? Guns pointed at each other is actually one of many societal byproducts of climate change, but for this thought experiment we should focus on the magnitude of devastation and hardship that is happening without a shot being fired. If slowing things down is the UN’s true nature, what can it slow down to forestall the full impact of this emerging catastrophe while it finds a permanent fix? What resources would it mobilize?

197 nations are signing the “Glasgow Climate Pact”, but the two most populous countries insisted on a language change from “phase out” to “phase down” coal. That fundamentally changes the coal question from one of “when” to one of “if”. Again, looking at other activities that pose imminent threat to life and land that bring UN involvement, say, nuclear weapons development or massing troops on a national border, the distinction between “phase out” and “phase down” would be of monumental import. We are mired in process over outcome.

On the UN’s news feed for November 3^rd, they reported “It’s ‘Finance Day’ at COP26, and the spotlight is on a big announcement: nearly 500 global financial services firms agreed on Wednesday to align $130 trillion – some 40 per cent of the world’s financial assets – with the climate goals set out in the Paris Agreement, including limiting global warming to 1.5 degrees Celsius.” At the UN above all other institutions, words mean something. What does “align” mean? Is this another “phase down” vs. “phase out” situation? For what we do on a regular basis as allocators of capital within that ecosystem of global financial services firms, we are forced to ask if this is a commitment to the largest greenwashing campaign in history. As we have written and spoken about repeatedly, we are looking to see whether this is the first step of many along a path to more sustainable capital allocation, or window dressing to manage optics. Intentionality is everything.

As noted previously, it is going to take the mobilization of private and not government capital to reach the intensity and scale of development necessary to forestall the worst effects of the climate crisis. Governments, who already failed to live up to their prior pledges to deploy $100 billion annually, should instead pivot to facilitating marketplaces and lowering barriers and allow the free market to do its work. Shifting capital to a regenerative model for food, energy, water, and infrastructure could unlock an economic boom and broaden participation in a way which would be historic in defining the 21^st century.

Charting COP-26 — Is that a pie in the sky?

November 10, 2021 / Mark Sloss

Today at COP-26 we received a declaration entitled “INTERNATIONAL AVIATION CLIMATE AMBITION COALITION”. Commercial aviation is a non-trivial contributor to GhG emissions. The widely cited statistic is that, if the industry were a nation, total output would rank it 7^th after Germany. From a climate policy point of view though, we are asking whether the focus is correct on the part of policymakers and signatory nations. The International Civil Aviation Association (ICAO) already set goals a decade ago of improving efficiency by 2% per year, which was not out of line with historical trends. Improvements in jet engine efficiency along with innovations in avionics and lighter airframes have led to steady increases in efficiency per passenger seat for decades. It makes absolute commercial sense because of the amount of the economics of air transportation consumed by fuel costs. Each generation of aircraft upgrades provides significant improvements. Fuel burn for new aircraft fell by nearly half from 1968 to 2014. We are questioning the focus because unlike other industries like power generation, there are no viable alternatives on the visible horizon. Coal plants can be decommissioned in favor of natural gas, or going all the way to wind, solar, hydro, etc. ICE cars and trucks can be replaced with EVs. There is no EV plane (yet). The industry is doing its part in terms of innovation and of course there is room to do more. The real burden is behavioral though, and yet that is nowhere to be found in the COP statement. There are commitments to alternative fuels and technologies, but nothing about curbing unnecessary air travel, making more efficient aircraft affordable for developing nations rather than selling them hand-me-down decades-old aircraft, or changing the business mix to favor flying larger and more efficient airframes over the explosion in use of small, less efficient, commuter aircraft for many routes. [chart from International Council on Clean Transportation, Fuel Efficiency Trends for New Commercial Jet Aircraft: 1960 to 2014, Anastasia Kharina, Daniel Rutherford, Ph.D.]

Charting COP-26 and The Global (In)Action Agenda for Innovation in Agriculture, November 9, 2021

November 9, 2021 / Mark Sloss

On November 6^th, we got a clever hashtag mention — #climateshot – and a “Global Action Agenda”: Increase investment in agricultural research and innovation to create more climate-resilient, low-emission technologies and practices; Focus at least a third of agricultural research and innovation investments deliver demand-driven solutions across food systems, to protect nature and limit climate change; Showcase successful business models and promote public-private partnerships that deploy these innovations on the scale needed to meet the climate and food security challenge; Forge consensus on the evidence of what works, and facilitate inclusive dialogue among food and climate champions around the world. A lot of the right stakeholders (160 institutions, NGOs, countries and companies) are at the table, and there are four key initiatives: “The 100 Million Farmers Multi-Stakeholder Platform, led by the World Economic Forum. The Global Research Alliance on Agricultural Greenhouse Gases (GRA) initiative, which brings countries together to find ways to grow more food without growing greenhouse gas emissions. The new CGIAR organisational structure, research and innovation strategy and portfolio of initiatives. ClimateShot allies from the impact investment community comprise over 20 investors, funders and initiatives, including innovative funds aiming to mobilise over US$5 billion in financing to transform agriculture for people, nature and the climate.” And that is where it all falls down. 20 investors, funders and initiatives and $5 billion in capital is not going to transform anything. (Re)Learning from our world indigenous communities how to shift, or shift back, to regenerative agricultural practices has the potential to address a major carbon problem while also making significant strides in stewardship of water systems, all the while feeding the planet and providing economic opportunity to individuals, families, communities, companies and countries. It starts at the grassroots. This graphic, courtesy of Marc Barasch and Green World Ventures, is a hand illustration of a regenerative approach to smallholder farming already employed in Nigeria which at scale addresses a myriad of economic, nutritional and climatological challenges. What is old is very much new again, and requires activation of those 100 million farmers as well as activation of sufficient capital, from far more than 20 stakeholders, to catalyze a global change.

Charting COP-26, November 2, 2021

November 2, 2021 / Mark Sloss

We will spend a bit of time in the coming days highlighting charts we think are material as they pertain to the finance aspects of the UN Conference of the Parties (COP-26) taking place in Glasgow. Our starting point for expectations on outcomes for COP-26 is low. There might be a few more reasons for optimism than there were going in to and coming out of the last convening that Sec. Gen. Guterres basically labeled a failure. But, with two linchpins in the global climate machinery – Russia and China – not present, even total agreement by the attending parties amounts to a half measure. More importantly, we do not believe the answer to the climate challenge resides in the hands of nation-states at the governmental level. As can be seen by these charts from the OECD on how many billions of dollars annually are deployed globally to address adaptation and mitigation across sectors, this is the proverbial small-barrel solution to a big-barrel problem. Many estimates rise into the trillions of dollars USD per year that must be mobilized in order to achieve the stated goal of avoiding the 1.5 degree scenario and address the adaptation and mitigation needs for climatological changes that are already established. That can only come from markets and industry, so the best possible action in Glasgow would be for governments to agree to create the conditions for private (and public) enterprise to succeed and thrive in building a better climate future and then get out of the way. [Charts from Climate Finance Provided and Mobilised by Developed Countries: Aggregate Trends Updated with 2019 data, OECD iLibrary]

WCM Chart of the Week for September 29, 2021

September 29, 2021 / Doug Wilde

Natural gas prices around the globe are elevated, and as the colder winter months in the Northern Hemisphere approach, prices will likely remain so. An unfolding potential crisis is most acute in the Eurozone where natural gas futures prices have increased over 500% in the past year, and conditions in the rest of the world are not much better. Calmer weather in Europe and thus lower wind turbine energy production has been cited as one reason for elevated prices, and rising demand for natural gas as a lower-carbon transitional fuel away from coal and oil is another. Unchecked, the higher price environment may lead to blackouts, heating shortages in colder regions, and forced plant shutdowns, and may exacerbate current and broader inflationary trends. Also, higher utility prices are effectively a tax on consumers (hitting lower wage earners the hardest) hastening an end to the global economic recovery that may be already moderating or even stalling in some parts of the world.

WCM image of the week for September 21, 2021

September 21, 2021 / Mark Sloss

Climate change imposes an indiscriminate tax on everyone. Increasing fire, flood, tornadoes, hurricanes, and coastal inundation are destroying private property and public infrastructure at an ever-increasing rate. But, there is no “they” to pay for it. We are they. And, it is not just the damage to places and things. There is a human cost in terms of lives and livelihoods, but also in the labor of countless emergency service workers, utility workers, etc. who go to work when a blaze needs to be battled or families need to be rescued from the roofs of their homes. People who do the brave work do not come cost-free. Even if they are volunteers they need resources to do their jobs. Looking locally, capital is being consumed in the tens, perhaps hundreds of billions of dollars here in the US not to create the next bridge, highway, dam or sewer, but to repair or replace what was already there. The cost of adaptation and resilience to climate change will accelerate away from us as well if the trajectory of change continues as it has. There is no path to higher global temperatures that does not include a tremendous economic burden falling on the backs of the global citizenry. We can pay the tax when the bill comes due, or we can seek out more capital-efficient ways to mitigate climate change and climate risk before it gets worse, including pricing that risk properly in the capital markets.