Green Markets #6
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.
New EPA Rules For Power Plants
The United States EPA is extending the deadline for coal power plants to utilize carbon capture to sequester 90% of their emissions. Previously, these power plants were expected to capture the vast majority of their emissions by 2030, that guideline has been moved out to 2032.
Conversely, future natural gas power plants will also need to install carbon capture systems by that same deadline. The prior target was 2035.
If a power plant cannot be retrofitted with technology to capture carbon emissions, then they will be forced into retirement by 2040.
While deadlines have been pushed back, legislation like this provides a bullish market outlook for the firms providing carbon capture solutions.
With 80% of Aker Carbon Capture (ACC) recently bought out by Schlumberger (SLB)… realistically, the only viable pure-play investment option left is LanzaTech (LNZA). The company isn’t exactly cheap, and it certainly has some risks, but it’s one to potentially watch— I laid out my thoughts in this video.
Financial Sector Pressure on Plastic
160 financial institutions, representing $15.5T in collective assets under management, are calling for governments to finally negotiate a comprehensive treaty to end plastic pollution. Said negotiations are set to take place at the fourth meeting of the Intergovernmental Negotiating Committee on Plastic Pollution (INC-4) next week.
The statement these institutions signed was created by UNEP FI, the Principles for Responsible Investment, Finance for Biodiversity Foundation, the Business Coalition for a Global Plastics Treaty, the Dutch Association of Investors for Sustainable Development (VBDO), and the CDP.
The Finance Statement on Plastic Pollution was endorsed by entities worldwide, especially the OECD countries.
This statement calls for the plastic treaty to:
Outline binding rules and obligations for governments to address the full life cycle of plastic waste.
Find a basis through a scientific approach.
Create a framework for all economic participants to properly align with its objectives.
Include harmonized targets across the plastics value chain.
Force companies to disclose plastic-related risks and opportunities.
Exchange-Traded Carbon on the Rise
The Intercontinental Exchange (ICE), one of the largest commodity exchange groups in the world, has recently announced significant growth in its environmental market futures contracts.
Trading activity in ICE’s contracts has grown by 30% year-over-year, with a 20% rise in open interest.
2023 marked the third consecutive year that carbon allowance trading volumes were over $1T in notional value.
These numbers signal rising interest in exchange-traded carbon products, particularly in compliance carbon markets. While most of ICE’s offerings are not in the voluntary carbon market space… this is a positive trend for the future of the industry as they search for viable pricing benchmarks.
Related stock(s): Abaxx Technologies
Xpansiv Launching New Carbon Exchange
Xpansiv, the world’s leading spot market exchange for environmental commodities, has been selected to provide the infrastructure for a new carbon credit exchange in Saudi Arabia.
Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, created the Regional Voluntary Carbon Market Company (RVCMC) in 2022 to invest in new carbon projects. The RVCMC has also contracted Xpansiv for this exchange.
Riham ElGizy, CEO of RVCMC, said:
"Developing a carbon credit trading exchange is the next step in RVCMC’s mission to become one of the largest voluntary carbon markets in the world by 2030. Our work with Xpansiv will help us build the infrastructure the market needs for a thriving, transparent and increasingly liquid market, one that can maximize the role of carbon offsets in tackling climate change across the Global South.”
As noted previously, ICE and CME, the two largest publicly traded commodity exchange operators, are also working to launch futures contracts in the carbon markets. Competition is increasing rapidly in this sector.
Related stock(s): Abaxx Technologies
Indonesia’s Geopolitical Risk
One of the largest REDD+ projects in the world, Rimba Raya, has been stuck in regulatory limbo for years as Indonesia has been revamping its carbon markets.
Royalty and streaming company, Carbon Streaming (NETZ), an investor in the project, has no clue when Rimba Raya is going to issue any new carbon credits— going off of the language in their latest MD&A:
Given the ongoing verification of the Rimba Raya project under the new SRN system and pending regulatory developments, the expected year of first credit delivery under the SRN system remains unknown at this time. As a result, the Rimba Raya Stream status has been classified as “Development”.
According to Carbon Pulse and Quantum Commodity Intelligence, InfiniteEARTH Limited, the developer of the Rimba Raya project, has had its project licenses revoked by the Indonesian government.
The developer disputes these claims, stating they weren’t made aware of the loss of their Concession License. Carbon Streaming will continue to work closely with InfiniteEARTH on its active engagement with its local partners, the MOEF, and the Indonesian Government to preserve the continuity of the Project.
This situation highlights the tangible risk behind shifting geopolitical demands in questionable jurisdictions. Given that many carbon methodologies are primarily located in the developing world (Africa and Asia)… it’s prudent for developers and capital allocators to diversify across jurisdictions and methodologies when possible.
New Green Funding Initiatives
Private equity investment firm KKR & Co. is raising up to $7B for its first global climate fund. The company is raising $750M-$1B at a time, with two deals already announced.
BlackRock and Temasek recently closed $1.4B in funding for a late-stage venture capital and private equity fund focused on decarbonization. Capital was raised from over 30 institutional investors, including sovereign wealth funds, insurance firms, and more.
The United States EPA is launching a $1B grant program for investments in the electrical transition of heavy-duty vehicles (Classes 6 and 7). These funds were sourced from the Inflation Reduction Act.
The Norwegian government is set to spend $346M over the next four years to combat plastic pollution. The funds will be dedicated to strengthening regulatory frameworks, improving plastic waste treatment, creating new innovative solutions, and cleaning up coastal zones and rivers.
A partnership between the government of Mongolia and The Nature Conservancy is raising $198M in commitments toward conservation and sustainable communities. This includes creating 14M hectares of newly protected land in the country’s grasslands, forests, deserts, wetlands, and rivers.
ProClime, a carbon developer and trading start-up, is investing $150M in new carbon projects in India and Sri Lanka over the next 12-18 months. The company’s focus is on nature conservation, sustainable agriculture, and biodiversity.
Manulife Investment Management, the world's largest manager of natural capital with over $16 billion of AUM in timberland and agriculture combined, has raised another $100M in a $500M target commitment toward the Manulife Forest Climate Fund LP.