Green Markets #4
Financial news in environmental markets.
Green Markets is a weekly series dedicated to highlighting events of interest or developing trends within environmental markets. The emphasis is on news that could impact investable opportunities in public stock markets.
O&G Are Here To Stay
“In only nine years between 2010 and 2019, Africa has turned from being a net carbon sink, to being a net carbon source.” - Witwatersrand University
A study from the Futures Ecosystems for Africa program based at the University of Witwatersrand in South Africa has found that Africa is no longer a net carbon sink. The country is emitting more carbon dioxide than its forests were previously consuming.
Africa currently contributes just 4% of the global greenhouse gas (GHG) emissions, but that number is set to rise quickly. The continent will grow its GHG emissions by at least 3-5% per year.
Key factors for this growth include:
Fossil fuel burning.
Methane emissions from livestock.
Carbon losses from land conversion for agricultural use.
With a large and rapidly growing population, the continent will consume increasing amounts of fossil fuels as its countries industrialize. The idea that they will skip straight to renewable energy sources is nonsense. They could transition faster than we did, but we’re talking about activities that will take decades, if ever.
If you include the rest of the developing world in Asia and other parts of the globe… you can see just how unlikely it is that we’ll see the usage of fossil fuels drop any time soon.
The world will need to pursue other means of reducing emissions to make up for the inevitability of the developing world continuing to modernize. This includes carbon capture, carbon credits, and other means of mitigating emissions in existing industrial processes.
SBTi About-Face On Carbon Credits
In a previous Green Markets post, we discussed how the Science Based Targets initiative (SBTi) would be forced to accept carbon credits as a valid form of emissions reduction. The organization sounded pretty hostile to the idea.
Well, I didn’t expect them to change their minds this quickly.
SBTi is backed by the United Nations, and the primary verifier of the climate targets announced by corporations. In the past, SBTi has refused to allow the usage of carbon credits for emissions reduction targets.
As of April 10th, SBTi announced that they’ll accept the use of “environmental attribute certificates,” including carbon credits, as valid forms of emission reduction toward Scope 3 emissions targets.
The initiative is expected to publish its first draft providing details on what credits may be used in corporate targets by July.
Here was Kyle Harrison’s take, head of sustainability research at BloombergNEF:
“For Scope 3-heavy companies, working towards and achieving net zero under SBTi is a moonshot without some reliance on carbon credits.”
Harrison is exactly right. O&G producers, steel and cement manufacturers, and other industrial firms will be forced to offset some of their emissions with carbon credits. Fossil fuels are required for too many processes to reach net zero otherwise.
As noted previously, this move by SBTi could increase spending in the VCMs by 9% per year, which would boost potential demand.
With all of this said, SBTi employees and environmental activists aren’t pleased with upper management's decision to allow carbon credit usage. In fact, SBTi staff have called for the resignation of the CEO and the organization’s board.
We’ll see if the decision holds. If it does, this will lead to increasing validation of the VCMs as a form of offsetting.