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#COP21: Barclays, “Investor momentum around portfolio decarbonization will likely continue to build.”

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Renewable stocks rose up to 10% yesterday, while Peabody Coal fell 13% to all time low following the Paris Agreement. This is part of a larger reaction from investors and financial analysts – including Barclays – who are warning clients about the long–term signal sent to the markets.

According to a Monday morning investor note from Barclays, “Investor momentum around portfolio decarbonization will likely continue to build.”

Barclay’s top takeaways for investors include:

– Accelerated transition to renewables: The Paris Agreement will tighten global climate policy over the years.

– Increased pressure on companies to disclose their carbon risks: The Financial Stability Board’s newly-announced Task Force for Climate-Related Financial Disclosure (TCFD), chaired by Michael Bloomberg, will lead to greater awareness among investors of the carbon intensity of different companies.

– Portfolio measurement, divestment and decarbonization: The increasing focus on climate risks has prompted investment funds to evaluate the carbon-intensity of their portfolios in these three ways. For example, the Portfolio Decarbonization Coalition increased their assets committed to decarbonization from $100bn to $600bn during the COP.

The Barclays note builds upon predictions laid out in their pre-COP equity research.

In the wake of Paris, investment analysts and business leaders are overwhelmingly echoing Barclay’s financial advice:

– Renewable energy stocks have soared in European trading – Norway’s REC Silicon, which makes the key raw material for solar panels, surged 10 percent; Shares in wind turbine makers Vestas Wind, Nordex and Gamesa also rose by between 2-5 percent, outperforming a 0.7 percent rise on the benchmark pan-European FTSEurofirst 300 index. (Reuters)

– Coal stocks have fallen and Peabody Coal lost over 13% on Monday (google finance)

– Euracoal, the coal industry’s European lobbying association has said that the landmark deal to cap global warming at the UN Climate Change Conference (COP21) in Paris means the sector “will be hated and vilified, in the same way that slave traders were once hated and vilified”. Brian Ricketts, Secretary-General of the European Association for Coal and Lignite (Euracoal), wrote to his members, “The climate bandwagon is rolling and gathering speed such that the fossil fuel industry will spend the coming years and decades in the spotlight for all the wrong reasons.”(Euractiv)

– The Economist reported, “Perhaps the most significant effect of the Paris agreement in the next few years will be the signal it sends to investors: the united governments of the world say that the age of fossil fuels has started drawing to a close.”

– IEEFA, reported in Deutsche Welle: The Institute for Energy Economics and Financial Analysis (IEEFA), which researches issues related to energy and the environment, said that in the longer term the Paris agreement could, indeed, change investor habits. “We have long outlined in our analysis that there is significant stranded asset risk in continuing to invest heavily in fossil fuel companies, particularly greenfield development projects,” IEEFA analyst

Tim Buckley told AFP. “Denial of an inevitable global transformation of energy markets has only served to make the end cost for investors and consumers higher.”

Patrick Pouyanne, CEO of French oil giant Total SA told Bloomberg Business, “As a major oil and gas company, we are clearly at stake in these discussions [but] an optimist sees in every difficulty an opportunity. I’m definitely an optimist; I have to be.”

Michael Skelly, president of Clean Line Energy Partners, a Houston-based company that develops long-haul transmission lines for renewable energy, saw the accord as a pivot point for a changing industry. He pointed to the investments that the United States made during the last century in its power grid and hydroelectric power. “Both have provided low-cost electricity in the ensuing decades,” he said. “In 2050, we will look back at the investments prompted by the Paris accords and see exactly the same phenomena.” (New York Times, December 13, 2015)

According to PwC in Business Green, “The immediate implications for business haven’t changed over the weekend and the Agreement is highly unlikely to move markets in the short term. For business, the sharp end of the Agreement is in the national plans or INDCs*. We analysed the major ones in our Low Carbon Economy Index, which signal to business a step change in effort to tackle emissions at the national level.”

Investor began signally the coming change even before negotiators finalized their work:

Ahead of Paris Bank of America Merrill Lynch, in their climate change solutions primer for clients, said “coal has become a stranded asset” while Goldman Sachs noted that the four biggest US coal companies lost 90 percent of market capitalization in 2015. “These companies struggled as coal prices fell and clean energy options became more competitive.”

Sarbjit Nahal, head of thematic investing strategy at Bank of America Merrill Lynch told Bloomberg TV before the Paris Agreement was adopted, “As investors we need to be very cognizant of this whole concept of stranded assets. The fossil fuel reserves that we’re potentially never going to be able to get out of the ground. We can see that with coal, where we’ve had anywhere from $2.6 to $4 trillion under management which has been divested and I think as we as a society try to reach that 2 degree target, the next line of attack is really going to be oil and ultimately even gas.”

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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