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A sustainable investment revolution must emerge from the IPCC’s stark warning

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The Intergovernmental Panel on Climate Change’s (IPCC) latest report has implications for us all. But given it warns of the unsustainability of our approach to energy production and calls for an unprecedented trillion-dollar shift in investment, it is particularly significant for investors.

Published yesterday, the comprehensive UN study says that without mitigation, scientists estimate that rising emissions mean global temperatures may increase by as much as 3.7C to 4.8C from pre-industrial times by the end of the century.

This would far exceed the 2C limit above which scientists fear devastating climate “tipping points” will be crossed.

To reverse this trend, the IPPC says global greenhouse gas emissions must be cut by 40-70% from 2010 levels by mid-century, and to near-zero by 2100.

This means spending on fossil fuels for energy supply must drop drastically while spending on renewable energy sources – as well as energy efficiency and perhaps nuclear and carbon capture and storage technologies – must increase.

It also means that much of the fuel reserves held by companies may be have to stay underground, cutting the value of their assets and reducing their revenues.

Previous research by the likes of the Carbon Tracker Initiative has suggested as much as 80% of fossil fuel reserves may become “unburnable” stranded assets. All of this has unavoidable consequences for all breeds of investor.

Luke Sussams, senior researcher at Carbon Tracker, tells Blue & Green Tomorrow that investors “need to take heed of this warning and stress-test their investments against lower demand and price levels for fossil fuels”. 

He adds, “There will be winners and losers in a carbon constrained world; investors need to evaluate their exposure to fossil fuels to ensure they are on the right side of the divide.”

Meanwhile Neville White, head of sustainable and responsible investment (SRI) at Ecclesiastical Investment Management, says the landmark IPCC report must serve as “a wake-up call to policymakers that climate change is happening now and is having ‘severe, pervasive and irreversible’ impacts”.

Ecclesiastical, which screens its investments for environmental management, manages over £2 billion in assets. Funds in its Amity range are among the leaders in the UK sustainable investment market.

White adds, “We continue to believe investors have a role to play in promoting energy efficiency, alternative technology and reduction targets in the emission of harmful greenhouse gases.”

Elsewhere, the Sustainable Future funds run by Alliance Trust Investments avoid oil and coal firms and have only a limited exposure to natural gas producers.

“We believe these assets by and large are not a sustainable source of fuel”, explains investment manager Simon Clements.

“We believe the vast majority of fossil fuel companies are being valued on assets that are at risk of never being utilised, and instead we prefer to invest behind companies that are developing technologies that facilitate the shift to more sustainable sources of fuel and energy.”  

Mike Appleby, SRI analyst at Alliance Trust Investment, notes that while some investors have wised up, the rest of the market “generally ignores this risk”.

Some fossil fuel giants have recently acknowledged the threat climate change mitigation policies are likely to pose to their operations. In March, Royal Dutch Shell said that future regulations introduced to cut carbon emissions could hit its profits.

Meanwhile, earlier this month, oil giant ExxonMobil issued a landmark shareholder report in which it admitted that “the risk of climate change is clear and the risk warrants action”. It said that investing in energy efficiency and low-carbon technologies was the answer, but argued that its reserves and other fossil fuels would still be needed to meet global energy demand.

Exxon’s stance, however, is not supported by the new findings of the IPCC. If the worst impacts of climate change – famine, poverty, extreme weather, disease and war, to name but a few – are to be avoided, we must all end our addiction to fossil fuels.

The scale of the challenge is massive. While the need for decarbonisation has never been clearer, according to a separate report published last week, renewable energy investment fell in 2013, partly due to policy uncertainty (but also partly down to the falling cost of the technology). Another study, which focused specifically on venture capital, private equity, project finance and public market, noted a slight increase.

All eyes now turn to the policymakers, who with the evidence before them must legislate to create an environment that supports the colossal shift in investment that is needed.

George Latham, managing partner and chief investment officer in London-based WHEB’s listed equity business, says, “The ball is now in the politicians’ court.”

He argues that Exxon’s defiant approach demonstrates that too many in the business community are still planning on “business as usual”, and will continue to until our leaders step in.

“The politicians need to demonstrate some conviction and long-term thinking and back the IPCC’s research with action in the run up to the United Nations Framework Convention on Climate Change meeting in Paris in 2015”, he adds.

However, perhaps one of the most crucial points made clear by the IPCC’s newest report is that investors must also play a fundamental role in the transition towards a cleaner, more secure future. Those who acknowledge this now are ahead of the curve.

Photo: Luke Partridge via Free Images

Further reading:

IPCC climate report means cleantech ‘an attractive proposition for any investor’

IPCC report proves fossil fuel investors are ‘wrecking our future’

Renewable energy investment drops as technology becomes cheaper

IPCC findings demand investment in a sustainable future, say investors

Economy

Will Self-Driving Cars Be Better for the Environment?

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self-driving cars for green environment
Shutterstock Licensed Photo - By Zapp2Photo | https://www.shutterstock.com/g/zapp2photo

Technologists, engineers, lawmakers, and the general public have been excitedly debating about the merits of self-driving cars for the past several years, as companies like Waymo and Uber race to get the first fully autonomous vehicles on the market. Largely, the concerns have been about safety and ethics; is a self-driving car really capable of eliminating the human errors responsible for the majority of vehicular accidents? And if so, who’s responsible for programming life-or-death decisions, and who’s held liable in the event of an accident?

But while these questions continue being debated, protecting people on an individual level, it’s worth posing a different question: how will self-driving cars impact the environment?

The Big Picture

The Department of Energy attempted to answer this question in clear terms, using scientific research and existing data sets to project the short-term and long-term environmental impact that self-driving vehicles could have. Its findings? The emergence of self-driving vehicles could essentially go either way; it could reduce energy consumption in transportation by as much as 90 percent, or increase it by more than 200 percent.

That’s a margin of error so wide it might as well be a total guess, but there are too many unknown variables to form a solid conclusion. There are many ways autonomous vehicles could influence our energy consumption and environmental impact, and they could go well or poorly, depending on how they’re adopted.

Driver Reduction?

One of the big selling points of autonomous vehicles is their capacity to reduce the total number of vehicles—and human drivers—on the road. If you’re able to carpool to work in a self-driving vehicle, or rely on autonomous public transportation, you’ll spend far less time, money, and energy on your own car. The convenience and efficiency of autonomous vehicles would therefore reduce the total miles driven, and significantly reduce carbon emissions.

There’s a flip side to this argument, however. If autonomous vehicles are far more convenient and less expensive than previous means of travel, it could be an incentive for people to travel more frequently, or drive to more destinations they’d otherwise avoid. In this case, the total miles driven could actually increase with the rise of self-driving cars.

As an added consideration, the increase or decrease in drivers on the road could result in more or fewer vehicle collisions, respectively—especially in the early days of autonomous vehicle adoption, when so many human drivers are still on the road. Car accident injury cases, therefore, would become far more complicated, and the roads could be temporarily less safe.

Deadheading

Deadheading is a term used in trucking and ridesharing to refer to miles driven with an empty load. Assume for a moment that there’s a fleet of self-driving vehicles available to pick people up and carry them to their destinations. It’s a convenient service, but by necessity, these vehicles will spend at least some of their time driving without passengers, whether it’s spent waiting to pick someone up or en route to their location. The increase in miles from deadheading could nullify the potential benefits of people driving fewer total miles, or add to the damage done by their increased mileage.

Make and Model of Car

Much will also depend on the types of cars equipped to be self-driving. For example, Waymo recently launched a wave of self-driving hybrid minivans, capable of getting far better mileage than a gas-only vehicle. If the majority of self-driving cars are electric or hybrids, the environmental impact will be much lower than if they’re converted from existing vehicles. Good emissions ratings are also important here.

On the other hand, the increased demand for autonomous vehicles could put more pressure on factory production, and make older cars obsolete. In that case, the gas mileage savings could be counteracted by the increased environmental impact of factory production.

The Bottom Line

Right now, there are too many unanswered questions to make a confident determination whether self-driving vehicles will help or harm the environment. Will we start driving more, or less? How will they handle dead time? What kind of models are going to be on the road?

Engineers and the general public are in complete control of how this develops in the near future. Hopefully, we’ll be able to see all the safety benefits of having autonomous vehicles on the road, but without any of the extra environmental impact to deal with.

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Economy

New Zealand to Switch to Fully Renewable Energy by 2035

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renewable energy policy
Shutterstock Licensed Photo - By Eviart / https://www.shutterstock.com/g/adrian825

New Zealand’s prime minister-elect Jacinda Ardern is already taking steps towards reducing the country’s carbon footprint. She signed a coalition deal with NZ First in October, aiming to generate 100% of the country’s energy from renewable sources by 2035.

New Zealand is already one of the greenest countries in the world, sourcing over 80% of its energy for its 4.7 million people from renewable resources like hydroelectric, geothermal and wind. The majority of its electricity comes from hydro-power, which generated 60% of the country’s energy in 2016. Last winter, renewable generation peaked at 93%.

Now, Ardern is taking on the challenge of eliminating New Zealand’s remaining use of fossil fuels. One of the biggest obstacles will be filling in the gap left by hydropower sources during dry conditions. When lake levels drop, the country relies on gas and coal to provide energy. Eliminating fossil fuels will require finding an alternative source to avoid spikes in energy costs during droughts.

Business NZ’s executive director John Carnegie told Bloomberg he believes Ardern needs to balance her goals with affordability, stating, “It’s completely appropriate to have a focus on reducing carbon emissions, but there needs to be an open and transparent public conversation about the policies and how they are delivered.”

The coalition deal outlined a few steps towards achieving this, including investing more in solar, which currently only provides 0.1% of the country’s energy. Ardern’s plans also include switching the electricity grid to renewable energy, investing more funds into rail transport, and switching all government vehicles to green fuel within a decade.

Zero net emissions by 2050

Beyond powering the country’s electricity grid with 100% green energy, Ardern also wants to reach zero net emissions by 2050. This ambitious goal is very much in line with her focus on climate change throughout the course of her campaign. Environmental issues were one of her top priorities from the start, which increased her appeal with young voters and helped her become one of the youngest world leaders at only 37.

Reaching zero net emissions would require overcoming challenging issues like eliminating fossil fuels in vehicles. Ardern hasn’t outlined a plan for reaching this goal, but has suggested creating an independent commission to aid in the transition to a lower carbon economy.

She also set a goal of doubling the number of trees the country plants per year to 100 million, a goal she says is “absolutely achievable” using land that is marginal for farming animals.

Greenpeace New Zealand climate and energy campaigner Amanda Larsson believes that phasing out fossil fuels should be a priority for the new prime minister. She says that in order to reach zero net emissions, Ardern “must prioritize closing down coal, putting a moratorium on new fossil fuel plants, building more wind infrastructure, and opening the playing field for household and community solar.”

A worldwide shift to renewable energy

Addressing climate change is becoming more of a priority around the world and many governments are assessing how they can reduce their reliance on fossil fuels and switch to environmentally-friendly energy sources. Sustainable energy is becoming an increasingly profitable industry, giving companies more of an incentive to invest.

Ardern isn’t alone in her climate concerns, as other prominent world leaders like Justin Trudeau and Emmanuel Macron have made renewable energy a focus of their campaigns. She isn’t the first to set ambitious goals, either. Sweden and Norway share New Zealand’s goal of net zero emissions by 2045 and 2030, respectively.

Scotland already sources more than half of its electricity from renewable sources and aims to fully transition by 2020, while France announced plans in September to stop fossil fuel production by 2040. This would make it the first country to do so, and the first to end the sale of gasoline and diesel vehicles.

Many parts of the world still rely heavily on coal, but if these countries are successful in phasing out fossil fuels and transitioning to renewable resources, it could serve as a turning point. As other world leaders see that switching to sustainable energy is possible – and profitable – it could be the start of a worldwide shift towards environmentally-friendly energy.

Sources: https://www.bloomberg.com/news/articles/2017-11-06/green-dream-risks-energy-security-as-kiwis-aim-for-zero-carbon

https://www.reuters.com/article/us-france-hydrocarbons/france-plans-to-end-oil-and-gas-production-by-2040-idUSKCN1BH1AQ

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