Fossil Fuel Industry Benefits From $5.9 Trillion in Subsidies a Year

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Fossil Fuel Industry Benefits From $5.9 Trillion in Subsidies a Year

The International Monetary Fund has found that the Fossil Fuel industry benefits from $11 million in subsidies per minute. No, you didn’t read that wrong. $11M per minute.

Coal, oil, and gas were subsidized by $5.9 trillion in 2020. At a minimum, prices were 50% below their actual costs for 99% of coal, 52% of diesel, and 47% of natural gas. Two-thirds of the subsidies resulted from 5 countries, which happen to be the top-five carbon producers globally: China, the US, Russia, India, and Japan.

Without action, the IMF expects subsidies to rise to $6.4 trillion by 2025.

If fuel prices that reflected the actual cost were set, global carbon emissions would drop by over a third, helping the world meet its Paris Agreement targets.

With the COP26 summit approaching, IMF researchers believe there is no better time to call for fossil fuel price reform. They feel that ending these subsidies could prevent nearly a million deaths a year from dirty air while raising trillions of dollars for governments across the globe.

According to Ian Parry, the lead author of the IMF report, “Some countries are reluctant to raise energy prices because they think it will harm the poor. But holding down fossil fuel prices is a highly inefficient way to help the poor because most of the benefits accrue to wealthier households. It would be better to target resources towards helping poor and vulnerable people directly.”

“The IMF report is a sobering reading, pointing to one of the major defects of the global economy,” said Maria Pastukhova, at the thinktank e3g. “The IEA’s net-zero roadmap projects that $5T is necessary by 2030 to put the world on the pathway to a climate-safe world. It is maddening to realize the much-needed change could start happening now, if not for governments’ entanglement with the fossil fuels industry in so many major economies.”

Fifty countries have committed to achieving net-zero emissions by 2050. Many are using offsets and implementing new regulations.

Though the carbon credit industry is booming and technological advances are happening, meeting these goals is still a long way away. Removing the subsidies while further expanding the carbon markets and technological innovation can help improve the environment while sparking economic growth.

This report by IMF shows there is still much progress to be made.

KraneShares Announce 2 new Carbon ETF’s – KEUA & KCCA

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KraneShares Announce 2 new Carbon ETF’s – KEUA & KCCA

Based on investor interest in KRBN (KraneShares Global Carbon ETF), the firm has launched two additional carbon allowances-focused ETFs.

“Through the phenomenal success of KRBN, we learned that many of our clients also want targeted exposure to the underlying markets,” said Luke Oliver, managing director and head of strategy at KraneShares.

“KEUA and KCCA provide access to the component carbon allowance markets at various stages of their growth cycle. With these new ETFs, investors can take a customizable precision-approach to invest in carbon markets.”

The KraneShares European Carbon Allowance ETF (KEUA) and the KraneShares California Carbon Allowance ETF (KCCA) are the new funds.

KEUA – Provides exposure to the European Union Allowances cap-and-trade carbon allowance program solely, and is actively managed with a 0.79% expense ratio.

The benchmark for the fund is the IHS Markit Carbon EUA Index, which follows the most-traded EUA futures contracts in the market, which is the oldest and most liquid for carbon allowances.

The market presently covers around 40% of all EU emissions, covering 27 member states as well as Norway, Iceland, and Liechtenstein. In an effort to reach long-term carbon emission targets, the yearly cap reduction was recently boosted from 2.2% to 4.2%.

KCCA– Provides exposure to the California Carbon Allowances cap-and-trade carbon allowance scheme solely, and is actively managed with a 0.79% expense ratio.

The fund’s benchmark is the HIS Markit Carbon CCA Index, which measures the most actively traded CCA futures contracts in a market that covers around 80% of California’s greenhouse gas emissions and has also covered Quebec’s emissions since its expansion in 2014.

The cap is now set to drop by 4% each year in order to achieve future carbon emission targets, and it has a built-in floor price that increases by 5% per year, plus an inflation adjustment.

 

Both funds may invest in carbon credit futures with different maturity dates than the index, or they may weight futures differently than the index. The fund may trade in CTFC-regulated futures and swaps beyond the CFTC 4.5 limit and is thus classified as a “commodity pool.”

Many countries and regions have implemented carbon-cap-and-trade programs, which limit how much carbon an individual firm can produce before needing to acquire allowances to offset extra emissions.

KraneShares presently invests in markets that have cap-and-trade schemes tied to emissions limits imposed by the Paris Agreement.

By establishing such programs, investors and markets can collaborate to put pressure on corporations to reduce emissions when exceeding the emissions limit becomes increasingly expensive.

Both funds join the increasing array of carbon allowance-focused ETFs, which includes the KRBN, which presently invests in the EU and North American markets, whereas the two new funds will each target a single market.

Formula 1 is Going Net Zero

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Formula 1 is Going Net Zero

Professional motorsports are getting the green light.

First, there was the Formula E (all-electric) series which started in 2014, and now is a FIA World Championship series, making it the first single-seater racing series outside of Formula One to be given world championship status.

Now the clean energy movement has reached the pinnacle of motorsports – F1.

Formula 1 recently announced that they are working on developing a new fuel for its next-generation engines intended to produce the same high-end performance while emitting net zero carbon dioxide.

In 2022 F1 will be using a blended fuel, 90% Fossil fuel, and 10% Ethanol.

This is just the first step in the longer race towards their stated 2030 NetZero goals.

The next major step will begin in 2025 when F1 announced that will begin using 100% “sustainable fuels” for their next-gen engines.

Formula 1 is working with fuel companies to creating the fuel in the quantities needed for the motorsport circuit. Then they plan on scaling up production for wider social use.

The fuel will be lab-created and using components from municipal waste, carbon capture schemes, or non-food biomass. The fuel will be 100% ‘drop in’ meaning that it can still power standard Internal Combustion Engines (ICE).

F1 believes that this 100% sustainable fuel will be available to use in the millions of internal-combustion vehicles still on the roads until the Electric Vehicle market beings to takeover.

This is good news as the full transition to Electric Vehicles will take decades to complete. According to IEA, Electric Vehicles sales are expected to account for 40% of total passenger car sales by 2030, but this will only equate to 13% of the global car fleet.

This new sustainable fuel could be the perfect transitionary fuel source.

Is Rio de Janeiro the Next Carbon Credit Hub?

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Is Rio de Janeiro the Next Carbon Credit Hub?

Over the past several years, Brazil’s image has been tainted through the practice of deforestation. To improve their environmental standing, Rio de Janeiro has made plans to establish a specialized exchange that will trade environmental assets.

According to Chicão Bulhões, Rio de Janeiro’s Secretary for Economic Development, their goal is to create tax incentives to fuel this market, consolidating the world’s most accepted regulatory standards to provide its framework. The plan is to launch by the end of the year.

“Brazil will be one of the biggest players in this market, which, as it is voluntary, has global reach. Companies around the world can buy credits to offset their emissions from anywhere else.”

With the global carbon market anticipated to reach $22 trillion by 2050, the city’s desire to tap into this can drive growth even further.

Bulhões hopes that as companies worldwide purchase credits to offset their own carbon emissions, Rio de Janeiro’s economy will strengthen, all through low-carbon initiatives, such as reforestation, seed, fertilizer production, and more.

The goal of this exchange goes beyond just the carbon credit industry. Bulhões has said they “Want to attract agents interested in trading all environmental assets, such as reverse logistics credits and environmental reserve quotas, which have great potential.”

Rio de Janeiro hosted the ECO 92 meeting that prompted the UN framework on climate change, which resulted in the Kyoto Protocol and the Paris Agreement. The city has celebrated these initiatives every 10 years since. As such, Bulhões believes this credit exchange is the natural next step. He hopes this will expand into Brazil as the country takes measures to combat the damage done to the Amazon rainforest.

In Brazil, the Amazon rainforest lost 10,129 square kilometers in 2019 – an increase of 34% from 2018 – and 11,088 square kilometers in 2020.

 

Biden’s Tax Credit for Carbon Capture – $85 / Tonne

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Biden’s Tax Credit for Carbon Capture – $85 / Tonne

Since US President Joseph Biden took office in January, Democrats and Republicans have gone back and forth on almost every piece of legislation. The new budget bill has been no exception. However, sources say top Democratic lawmakers have finally reached an agreement that includes increasing tax credits for industrial carbon capture projects.

If implemented, this agreement would expand the 45-Q tax credit for carbon capture projects in heavy industries, such as cement and steel, to $85 per metric ton.  Currently, the credit varies from just under $12 to $50 per ton.

This agreement does not cover coal and natural gas, a significant source of US carbon emissions. However, Senator Joe Manchin of West Virginia is pushing for coal and natural gas to be included. Doing so would help boost his state’s economy while improving the environment.

Since Senator Manchin is a right-leaning Democrat, his vote is key to the budget bill’s passage.

US Representative Cheri Bustos, a Democrat who has sponsored carbon capture legislation, said that raising the credit “Would drastically increase our carbon capture capacity by 2035 and create tens of thousands of new jobs.”

Many of these new jobs would be within ethanol and manufacturing plants that are in rural locations. Since many workers across more rural states feel left behind, a bill such as this could positively impact communities.

The carbon credit industry is expected to reach $22 trillion by 2050. This year alone, it has expanded as governments, companies, investors, and individuals recognize its potential to offset carbon and spark economic development.

The US is the second-largest greenhouse gas emitter globally, just behind China and before India, so action is needed. Biden has expressed that the US is committed to meeting emissions goals by rejoining the Paris Agreement.

Additional regulations, the carbon credit and offset industry, and innovative technological advances all have a role to play. Combating climate change was a significant campaign promise, and many feel Biden hasn’t delivered.

SEC Starts to Focus on Climate Change Impact

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SEC Starts to Focus on Climate Change Impact

The SEC recently published a sample comment letter on climate change disclosure. The goal is to make companies aware of what is coming down the pipeline in terms of disclosure for climate change.

Earlier in July, SEC Chair Gary Gensler asked agency staff to submit a mandatory climate risk disclosures proposal for review. These reports may be required in an expanded Form 10-K and describe a company’s direct and indirect carbon emissions, including those by suppliers and partners.

SEC disclosure rules may require companies to disclose current & potential future material impacts of climate change on the company’s business and financial condition and performance.

According to the SEC, “Information related to climate change-related risks and opportunities may be required in disclosures related to a company’s description of business, legal proceedings, risk factors, and management’s discussion and analysis of financial condition and results of operations.”

For now, the SEC is asking companies to provide information about climate change’s direct and indirect impact on their business. This includes the impact of regulations.

In the future, companies may need to report on greenhouse gas emissions, the financial effects of climate change, and progress towards climate-related goals.

Gensler said he wants investors to have access to “consistent, comparable, and decision-useful disclosures.”

The tools to combat climate change are here. Between technological innovation and carbon offsetting, it is possible to achieve net-zero emission goals.

The SEC is expected to release more information by the end of this year…

What Role Will Carbon Credits Play in the Race to Net Zero?

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What Role Will Carbon Credits Play in the Race to Net Zero?

The carbon credit industry is booming and with good reason!

Carbon offsets produced through the purchase of carbon credits can improve the environment and spark socio-economic growth.

When speaking about the carbon credit and offset industry, Australian Federal Energy and Emissions Reduction Minister Angus Taylor said, “The fact is, the world won’t achieve net-zero emissions without offsets, including cross-border offsets.”

The reason why? Offsets can make the transition to low emissions simpler as industries develop the technology needed to get there. Without offsets, it would be impossible for the world to keep rising temperatures below 1.5 Degrees Celsius, which the Paris Agreement requires.

The technology to bring us to net-zero isn’t quite there yet. In fact, one report by the Intergovernmental Panel on Climate Change in August found that the world would need to reduce carbon emissions by 45% by 2030 to meet the Paris Agreement’s goal. Unfortunately, with emissions on track to rise by 16%, temperatures may increase by 2.7C. Hence why carbon credits are so important.

Some aren’t so sure.

Standard Chartered Group CEO Bill Winters said that “The voluntary market, as we see it, has an absolutely critical role to play. [But] It’s always going to be a secondary role to the primary focus of reducing the carbon intensity of our economy in every possible way.”

Winters believes the voluntary markets are critical for two reasons:

1.) The markets can move billions into the hands of people who can perform projects that will help improve the environment; and

2.) When appropriately done, the market can provide a price for carbon that is accurate – forcing corporations and the public to make better choices when it comes to their carbon footprint.

His concern is due to a lack of standards, transparency, and in some cases, integrity concerning the verification process. Though some of these concerns are valid, they may not be for long.  The verification process is improving, with many entities working together to create global benchmarks.

With some additional regulation and reform, it is safe to say that carbon offsets will play a significant role in helping the world meet net-zero goals.

New Infrastructure in China is Better – But Still Carbon-Intense

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New Infrastructure in China is Better – But Still Carbon-Intense

A new report from Greenpeace East Asia has calculated that emissions from China’s “new infrastructure” industries will only reduce emissions by 7.24% – far less than what was hoped for.

China is currently the world’s largest carbon emitter, accounting for 27% of the world’s greenhouse gas emissions. The United States comes in second, and India comes in third.

According to Greenpeace’s report, China’s new infrastructure policy language has focused on low-carbon development for their latest projects – which is great. However, because China hasn’t set green standards for the supply chains of these projects, the individual projects only go so far.

Essentially, if the carbon emissions to create these “green” projects is high, it negates the positive impact of the projects as a whole. It’s like running a mile, then eating a cake. You may not gain that much weight, but you’re not exactly the poster child of health and wellness either.

“The goal of infrastructure investment is often to increase productivity in the supply chain. Addressing the carbon profiles of individual projects, then, only goes so far. Without specific environmental standards for the entire supply chain, high carbon emissions will remain a major byproduct that offsets any low-carbon advances in project planning,” said Zhang Kai, deputy program director in Greenpeace East Asia’s Beijing office.

In other words, there’s room for improvement.

China’s new infrastructure includes:

  • 5G technology
  • Artificial Intelligence
  • Data Centers
  • Electric Vehicles
  • Infrastructure (such as Ultra-High Voltage Power Lines and “Smart” cities)
  • High-Speed Railways

In addition to “new infrastructure,” China started a national carbon trading market in July. Once it is fully operational, it is expected to be the largest carbon marketplace in the world.

Right now, experts believe the global carbon market could reach $22 trillion by 2050. Many view the carbon marketplace (where carbon offsets are purchased through credits) as integral to fighting climate change, promoting sustainability, and driving economic growth.

China hopes to peak its carbon emissions by 2030. Their ultimate goal is to achieve carbon neutrality before 2060.

If China can continue to work on their new infrastructure projects, cut supply chain emissions, and expand their carbon credit and offset industry, net-zero goals may be possible. Time will tell.

Is Carbon Neutral Mining Possible?

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Is Carbon Neutral Mining Possible?

Renewable energy is needed to reduce carbon emissions and combat climate change. The problem is, many aspects of renewable energy rely on mining, which is a significant source of carbon emissions.

Global Technology company ABB may have the solution. Their new program, ABB Ability eMine, is helping with the transition to make mining carbon neutral.

The implications of such an improvement are huge across the mining and carbon credit industry, as it can drastically reduce greenhouse gas emissions across the globe.

ABB’s eMine consists of electrification technology that uses digital applications and services within the mining process. This can optimize energy usage, reduce costs, and improve performance.

One part of ABB’s Ability eMine program is ABB Ability eMine FastCharge, which provides high-powered electric charging for haul trucks. It can be installed anywhere and charge an electric truck up to 600 kW. Depending on the battery capacity, the charging time could be as short as 15 minutes.

The technology is currently in its pilot phase, but ABB expects a 2022 release.

ABB is also hoping to incorporate the ABB Ability eMine Trolley System, reducing diesel consumption up to 90%.

According to Max Luedtke, ABB’s Global Mining Head, “The global mining industry is undergoing one of the most significant and important transformations of our generation – and that is to become zero-carbon.”

Since the mining industry generates between 1.9 and 5.1 gigatons of carbon emissions annually, a significant transformation is an understatement!

Technological innovations such as ABB’s, along with increased regulation and the carbon offset industry, are precisely what the world needs. It will be great to see how ABB’s eMine, FastCharge, and Trolley System programs will transform the mining industry moving forward.

Luedtke said, “Mines can become ever more energy efficient with vastly reduced levels of carbon dioxide emissions while staying competitive and ensuring high productivity.” The more projects created to reduce and offset carbon, the better.

With ABB celebrating 130 years in the mining industry, this announcement can propel them further into the future.

Thailand’s Biggest Companies Plan Carbon Credit Exchange

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Thailand’s Biggest Companies Plan Carbon Credit Exchange

Thailand’s state-owned electricity generating company and 10 of the nation’s biggest companies have set up a voluntary emissions-offset program.

This “Carbon Markets Club” has one of the world’s largest conglomerates (Charoen Pokphand Group) and Bangkok transit operator BTS Group Holdings as two of the founders.

Since its early start in June, the club has traded ~15,000 tonnes of CO2. The intent is to expand into a full carbon-trading exchange for the whole country. There are +40 other companies that have expressed interest in joining the group.

The plan is to build a system similar to exchanges in the European Union and China, where big emitters offset their carbon footprint by purchasing credits from companies.

Club members can trade credits over-the-counter in an effort to speed up energy transition. Revenues from the trades would be invested in clean energy or technologies.

With million tonnes of supply and not a lot of companies wanting to cap their own emissions, Thailand’s voluntary system still has more supply than demand and the prices are less than $1 per tonne.

This is a stark contrast to the other markers such as the EU where pricing is above $60 per tonne. The EU, where carbon-intensive sectors such as oil and steel are subject to a cap-and-trade that can push up prices as authorities tighten climate goals.

The Thai Government has also been promoting a bio-circular-green economic model, and their own voluntary emission reduction program called T-VER.

The ultimate goal is to extend the carbon market beyond T-VER to provide a platform for trading all carbon credits both within the country and across borders.

Voluntary corporate commitments to net-zero emissions are the main driving force behind increased carbon-credit demand, according to a World Bank report.

This is part of a bigger global effort to reduce climate change impacts and limit global warming from pre-industrial levels to well below 2 degrees Celsius.

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