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Economy

Post-Paris: Investing In A Greener Tomorrow

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Following the COP21 conference on climate change, the United Nations’ policies in the Paris Agreement will have important repercussions for investments in fossil fuel-based sectors. Michael Wilkins, Managing Director of Infrastructure Finance Ratings at Standard & Poor’s (S&P), stresses that new impetus from the Paris agreement will help the financing of more clean energy as investors divest from fossil fuels.

The Paris Agreement on climate change, approved at the United Nations’ COP21 summit last December, marks a milestone in the fight against global warming. Committing governments to keep global temperature rises below the critical 2 degree threshold, the agreement has set targets to significantly reduce global greenhouse-gas emissions.

Key to following through on these pledges is monetising the reduction of emissions, meaning investors will increasingly find disincentives for engaging with fossil fuel-based sectors. Meanwhile, considerable incentives for financing cleaner energy are necessary to usher in a complete global transition.

Here, other international initiatives – such as the UN’s Principles for Responsible Investment Initiative and the Climate Bonds Initiative’s Green Infrastructure Investment Coalition – will be essential to help unlock the private-sector capital needed to address the public spending deficit.

Divesting from fossil fuels

While the transition to cleaner, greener energy sources will not be immediate, the Paris Agreement is certainly a step in the right direction. But meeting the Agreement’s long-term emissions-reduction targets – to ensure emissions peak as soon as possible, and of carbon-neutrality by the middle of the century – will depend on creating the right incentives.

Monetising the reduction of emissions is key. Establishing a clear carbon price by emissions trading mechanisms (already implemented in the EU) or carbon taxes could see increased divestment from fossil fuel-based energy projects. Development of such mechanisms could push the carbon price up – leading to increased fossil fuel commodity prices, and harsher costs of complying with new regulation for certain industries.

Of course, the highly carbon-intensive oil and coal-based sectors would bear the financial brunt, along with related commodities and utilities. Coal-fired power plants in particular are most vulnerable to becoming ‘stranded’ (an asset that no longer has economic value). In fact, if governments are able to honour the carbon reduction pledges set by COP21, $33.1 trillion of global coal, oil and gas revenues would be at risk of becoming stranded by 2040, according to the International Energy Agency (IEA).

And momentum is increasing. 25 institutional investors in the ‘Portfolio Decarbonization Coalition’ have already committed to decarbonising $600 billion of their portfolios. In addition, the Bank of England has stressed the need to factor climate risk in financial planning, which signals a shift in approach. In response, S&P is increasingly reflecting environmental and climate-related risk in its credit analysis.

Finance going green

But if countries are to fulfil their pledges, investment in environment-friendly projects will need a boost – around $16.5 trillion globally over the next 15 years, according to the IEA. As the chart shows, annual investment in clean energy must be ramped up significantly if the 2 degree benchmark of a global temperature rise is to be achieved.

Post-Paris Investing in a greener tomorrow

The Paris Agreement certainly offers investment potential. For example, Dubai has committed to sourcing 75% of its power from solar energy by 2050, India and France aim to provide $1 trillion of solar investment by 2030, and Chinese and Indian COP21 targets alone require global wind and solar capacity to double within 15 years. Such opportunities will create significant demand for capital.

The private sector can help to meet this financing demand as institutional investors look to stock their portfolios with new assets in clean energy production. Particularly, developing low-carbon infrastructure will rely on scaling up the green bond market from the current global issuance of $40 billion to nearer $1 trillion per year.

Various initiatives can help here. The UN-supported Principles for Responsible Investment Initiative promotes awareness of sustainability in the private sector. Meanwhile, the Climate Bonds Initiative’s Green Infrastructure Investment Coalition stands to help investors understand the financing of low carbon, energy-efficient infrastructure.

The global energy transition has begun: with the right incentives and support, investors could certainly help to unlock the potential of the Paris Agreement.

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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