If you read just one thing this year…… first, it’s December! What took you so long?……second, make it this.
Much like La Tomatina, the Cooper’s Hill Cheese-Rolling festival and many other revered annual oddities before it, Carbon Tracker’s Christmas Cracker has inadvertently become a staple on the thinking wo/man’s yearly bucket list. The format remains the same – a wry run-down of the major climate change and energy events of 2017 to the tune of ’12 Days of Christmas’.
‘On the 12 days of Christmas, 2017 gave to me:
One hundred (+) companies targeted for action
Global investor coalitions have come together to co-ordinate engagement with at least 100 of the companies most exposed to climate risk. The Climate Action 100+ launched at the Macron Summit in December 2017 represents 225 investors with $26.3trn under management. The initiative will focus on three areas:
- Implement a strong governance framework
- Take action to reduce emissions across the value chain
- Provide enhanced corporate disclosure in line with the TCFD
Companies who are disappointed at not making the list can apply to be one of ‘+’ group to be added in the new year.
If its not possible to limit global warming consistent with the ambitions of the Paris agreement, then Father Christmas will have to relocate – so of course it’s possible.
In partnership with the UN Principles for Responsible Investment (PRI) and 5 pension funds, Carbon Tracker’s ‘2 Degrees of Separation’ report found that across the oil and gas industry $2.3 trillion of upstream projects are inconsistent with limiting global climate change to 2C – a finding subsequently echoed by the IEA. This analysis is a tool that allows investors to align their capital allocation decisions with a company’s exposure to climate risk that Carbon Tracker was able to roadshow around 8 cities. Hindsight has shown that companies and their investors could benefit from aligning with the findings from our cost-curve analyses. Carbon Tracker also published the first report looking into what a 2°C scenario might mean for the refining industry, concluding that margins could be down across the board if lower volumes are being processed. The reports also proved that there are only two degrees of separation between Mark Campanale and anyone who works in SRI.
3 strikes and out
In an unprecedented step, investors went against the wishes of the corporation to instead vote that ExxonMobil and Occidental Petroleum Corp. must report on the business impacts of climate change. Rob Schuwerk, Carbon Tracker’s senior counsel, told the BBC that ‘climate change is now front and centre in investors’ engagement’. After support for the 2C scenario assessment resolution grew from 38.1% in 2016 to 68.1% in 2017, Exxon has decided to avoid a repeat in 2018. In December 2017 Exxon submitted a brief SEC filing formally indicating it would comply with the heavily supported shareholder proposal to publish its own 2C scenario assessment. [Our lawyers have sensibly removed the commentary here].
2017 has been another year of growth and change for Carbon Tracker in terms of personnel. We are extremely excited to welcome Saker Nusseibeh, CEO of asset management firm Hermes, as non-executive Chairman and thank Dr. Jeremy Leggett for everything he has done in the role for the past 6 years. Carbon Tracker also welcome to the board Meg Brown, Impax Asset Management, Paul Bodnar, MD of Rocky Mountain Institute, and Emma Hunt, ex co-head of engagement at Hermes EOS. We also welcome 6 new members of staff. Finally, the gender balance is improving!
5 COAL THINGS!
- Coal power capacity is closing in the US and will continue to do so under President Trump’s watch. Clearly the US is ‘No Country For Coal Gen’, as per the title of Carbon Tracker’s 2017
- Continuing Carbon Tracker’s true mission to monopolise the market of fantastic report titles, ‘Lignite of the Living Dead’ found that 54% of EU coal power is loss-making today. By 2030, this figure will rise to 97%. The report called on investors to pressure utilities to close loss-making units and avoid losses.
- China’s coal sector was essentially a tale of two halves in 2017. New coal plant approvals were suspended in 29 of the 32 provinces, practically bringing an end to further growth. However, a study from Urgewald found that Chinese corporations are planning or building more than 700 new coal plants at home and abroad. In 2018, Carbon Tracker will be embarking on the pilot phase of a new workstream focusing on coal and climate in China.
- Future coal demand growth is in doubt in India. 2017 saw 14GW of planned coal-fired power stations
- Carbon Tracker stands by our assertion that the global thermal coal sector is in structural decline. This year’s data confirmed that 2016 saw a further decline in global coal consumption with the US and China both consuming less of the fuel. This is reflected in the IEA’s 2017 Medium-Term Coal Market report that says either that: i) global coal demand will remain almost flat to 2022, if you ask the IEA’s Newsroom; or ii) that it will in fact rise, if you read wider media. That’s your choice.
6 % fall in LCOE
This year’s Levelized Cost of Energy (LCOE) A record low solar PV price was set in November in Mexico where Enel Green Power bid US$1.77c/kWh. Average battery prices have also fallen by 24% this year such that concerns about intermittency could soon be a thing of the past.
The nexus of renewables plus storage is already creating some fascinating new business model opportunities. For example, car company Daimler has teamed up with Vivint Solar to provide home power storage in the US. Meanwhile, in the UK, Nissan and Ovo (a utility) have established a ‘vehicle-to-grid’ service where the utility will sell unneeded power from the Nissan Leaf at peak times and charge the vehicle for the user during off-peak periods. And Elon Musk delivered on his Twitter bet to provide South Australia with 100MW of storage in 100 days – so you can believe some things you see on Twitter after all.
7 years until peak coal and oil demand
This was the finding of Carbon Tracker’s report produced with the Grantham Institute at Imperial College London looking at the degree to which solar PV and EVs could disrupt incumbent fossil fuels. The report, ‘Expect the Unexpected’, shows that on current cost trajectories, solar PV and EVs threaten to result in both peak coal and oil demand in the early 2020s, if countries meet their NDCs. An online tool accompanied the report allowing users to create their own scenarios with our modelling assumptions. With 1000+ articles worldwide, the report made a noteworthy contribution to a global public discussion on peak fossil fuel demand, including an endorsement from Nick Butler at the FT that ‘it deserves to be read by everyone working in the energy sector, by policy makers and perhaps most urgently by investors’. The financial community has also focused on the topic of EVs with UBS, ING and Morgan Stanley all publishing bullish forecasts on future growth that way exceed the expectations of the oil and gas majors. If we’re lucky, these ‘twin peaks’ will be far less unsettling than a David Lynch nightmare.
81.7trn AUM held by TCFD supporters
Since its launch in mid-2017, there has been growing support for the FSB taskforce’s recommendations on climate disclosure. By the Macron summit this has grown to include 20 of the 30 globally-systemically important banks, eight out of ten of the largest asset managers and many leading insurance companies and pension funds, together responsible for assets of over $81.7 trillion. Along with the endorsement of non-financial companies who produce reports, this will act as a major driver for increased disclosure in 2018. Maybe, within a few years, we’ll all be lauding ‘Totally Comparable Flippin’ Disclosures’ instead. (I know, I’m sorry).
9 out of 10 polar bears…
…back the recommendation that the Norwegian Sovereign Wealth Fund sells off its $35bn in oil and gas stocks – ‘a shot heard around the world’. Earlier in the year, Japan’s Government Pension Investment Fund, the world’s largest pension fund, announced it will shift $8.8bn of its passive domestic equity investments into ESG indices. Are Sovereign Wealth Funds going to continue to set the pace in 2018?
10 energy companies send mixed signals
As components of the low-carbon transition accelerate, fossil fuel companies have, to different degrees, aligned with this shift. Far adrift at the back of the pack stands Santos, an Australian oil and gas company that told its shareholders that its business model is based on a 4C pathway that ‘is very sensible and consistent with good value’. This standpoint may not be as uncommon as it seems, although few have admitted as such publicly. Glencore released a report ahead of its AGM that revealed the company clearly views a 2°C outcome as unlikely.
The theme of oil demand displacement due to EVs has been thrust onto the agenda of the majors’ in 2017. Most have dismissed the threat including Saudi Aramco, Shell and BP. Statoil and Total have said that peak oil demand, in part due to the EV revolution, could occur as early as 2025, with the latter stating its future will be in electricity not oil. In the mining sector, BHP Billiton is looking to leave the Minerals Council of Australia due to ‘material differences’ on climate change. E.On is in talks to sell its fossil fuel arm to focus on its renewable energy business.
At the front of the pack is Dong Energy who this year agreed to sell off its oil and gas business to become solely an offshore wind farm developer and prove that it is possible to transition from a high to low carbon business model. We are not yet convinced that Orsted is a better name though.
11 dollars a barrel
The Brent oil price has only moved around $11/bbl in either direction from the $55/bbl level seen in the first quarter of 2017. The end of the year has seen prices rising, but it is not clear if that is a sustainable level. Some of the oil majors have started espousing a strong capital discipline mantra. Given the historically strong correlation between oil price and capex spending levels, 2018 will be a key test of whether companies deploy capex based on the current price or what they expect future demand and prices to be. If oil stays at $65/bbl for a period will we see an upsurge in capex? As ConocoPhillips put it: “Predicting price is useless, scenario planning is priceless”.
12 times more EVs…
…by 2020 to be in line with 2C. It sounds like a lot, and it is, but the announcements and targets made by the world’s car manufacturers, when aggregated in our EV Tracker, suggest we will be on track within 3 years time. EV sales surged to 2 million in 2016 and battery costs have fallen by 24% this year compared to last, according to BNEF. Furthermore, cities, regions and nations are consistently announcing plans to phase-out oil consuming vehicles which will be critical to hitting a 2C trajectory for EVs and sticking to it, e.g. India’s plan for 100% EVs on the road by 2030.
If you made it this far, please Tweet us @carbonbubble with #imadeit as proof that at least one person read all 2000 words, and to receive great adulation from Carbon Tracker staff for your achievement (no gifts, unfortunately. We are a responsible NGO after all!).
Merry Christmas from everyone at Carbon Tracker and thank you for your support in 2017!!