From Kate Mackenzie, former Alphavillain and current climate-finance think-tanker
Warren Buffett’s annual letter last week badly lets down any reader hoping to understand the implications of climate change for the general insurance and reinsurance sector.
If Buffett had said climate change impacts are not a problem for ‘his’ insurance companies, because his managers are managing the risks thusly, that would be fine. It’d also be a fascinating read, if it went into some detail — unlikely though, because that would reveal competitive information.
Unfortunately he chose to apply it to all of the insurance sector: Read more
One of the problems with green energy finance is the nature of the asset. Unlike fossil fuel developments, which spread the capital cost of development and production across the lifespan of the asset, most renewable projects have to be entirely capital funded up front.
According to Citi’s Anthony Yuen and Ed Morse, that means the cost of financing is the key determinant in making these projects competitive and viable — an increasingly pressing objective in the context of falling fossil fuel prices, which reduce the competitive position of renewables in the energy complex. Read more
In two weeks time, 195 delegations at COP21 will gather in Paris in an attempt to tackle climate change.
The goal of the 2015 UN climate change talks? A deal to keep global warming below 2 degrees Celsius. But it’s unclear exactly what will come out of Paris.
Beyond any overarching agreement or policy, attendees would do well to remember the actual people who would be working in the changing energy landscape.
With the difficulties of transitioning from a high carbon to low carbon environment, plus the potential disruption of automation and robots, going green is filled with many potential landmines for the workforce.
Just last week, BoE chief economist Andy Haldane sounded the alarm about the threat of robot labour to the tune of 15m UK jobs. And the most at-risk occupations from automation — involving administrative, clerical and production tasks — typically are the lowest paid. Plus, moving toward a low carbon economy will likely require trillions of dollars in investments just over the next 15 years. What will happen to employment as the energy sector and governments make moves to go green? Read more
Money printing was supposed to cause an inflationary collapse, right?
Except, points out Seth Kleinman at Citi on Wednesday, by encouraging investment in risky commodity ventures like shale, easy money has in reality ended up causing a deflationary feedback loop of hell.
The access to cheap financing that low rates and QE generated has been deflationary in two key ways: 1) the growth of shale and the sanctioning of very high breakeven projects that cheap financing made possible has glutted the markets with oil; and 2) the rampant growth of shale, which is located in the middle of the cost curve and has significantly shorter lead times for first oil versus conventional production, acts as a buffer against price rises. Furthermore, given how much of the EM growth story of the previous decade has been driven by the rise of commodity exporters, the negative growth shock from lower commodity prices is compounding the first order deflationary impact in the US and Europe.
This guest post is from Kate Mackenzie, a former Alphavillian who now works with The Climate Institute in Australia.
Anytime a public figure mentions climate change, you can guarantee a fierce response — and, sure enough, it happened again with Mark Carney’s speech on climate risk. Read more
At last week’s FT125 forum Bill Gates called for more investment in breakthrough clean technology research like high-altitude wind, which attempts to capture energy from the the fast flowing narrow air currents found in the earth’s atmosphere.
Gates also said he is planning to double his personal investment in transformational green tech to $2bn over the next five years in an attempt to “bend the curve” in combating climate change.
But another less expected message from Gates was that billionaire entrepreneurs like him operating in the private sector can’t be depended upon to change the energy paradigm alone — what some might describe as a slap in the face of those American tech entrepreneurs who favour fiercely laissez faire approaches to such challenges. Read more
At the FT’s 125 forum on Wednesday night, Bill Gates, Microsoft co-founder and Bill & Melinda Gates Foundation co-chair spoke with the FT’s editor Lionel Barber about topics as far ranging as philanthropy, AI, climate change and management.
But if there was one core takeaway from the evening’s discussion it was Bill Gates’ adamant stance on the pace of innovation, which he described as currently taking place at its fastest rate ever. All this, he suggested was leading to a “supply-side miracle” with hugely deflationary consequences for the global economy as a whole. (A truncated version of the interview is now available here.)
Back in November we meandered through the possible implications of there being no more petrodollars in the system (on account of US shale oil energy liberation).
Since then, we’ve also been thinking about the possible implications of there being no more sweatdollars in the system (on account of US re-shoring and digital manufacturing trends).
So what happens if key dollar recycling pathways were to be significantly closed off or contracted?
Privately, we’ve speculated the situation could over time lead to the rise of a new international funding currency front runner. (Though, certainly not because the US is losing influence. More because, shale oil and a labour surplus means it may not be in America’s interest to defend reserve-currency status at all.) Read more
Institutions like Carbon Tracker have proved that reframing collective action arguments in dollar cost terms can be highly effective at mobilising the world’s top asset holders to take action.
In the case of climate change, asset holders took note when the associated risks were presented as a carbon bubble threat on the basis that fossil fuel assets aren’t really wealth if they can never be burned (at least not if we’re to spare the planet from life-threatening climate change) .
But, it turns out, there may be another equally effective way of framing the argument. Read more
It was Climate Finance Day in Paris last week, a conference convened under the auspices of UNEP and the UNPRI to address the specific challenges and issues of redirecting capital towards a resilient low-carbon global economy ahead of the United Nations Climate Change Conference also to be held in Paris, in December.
The big takeaway was consensus is shifting, especially among asset managers and real money investors who no longer view environmental sustainability as a fringe theme. Climate is a bona fide risk for beneficiaries which professional investors must guard against to fulfil their fiduciary duties. To do nothing, essentially, is to encourage a disorderly capital transition and, potentially, a financial panic.
As example, Axa’s chief executive pledged the insurer would divest €500m of coal assets between now and the end of the year. Read more
We know central banks have the power to support asset classes and to move markets, and do so frequently in the name of financial stability.
But are there other social threats that could be stabilised or mitigated by central banks in a similar way?
For example, should central bank monetary policy be charged with a green agenda? Should central banks take it upon themselves to encourage and support the formation of liquid environmentally-focused markets? Read more
So writes the FT’s Martin Wolf in his column today, which starts out noting that atmospheric carbon dioxide concentrations exceeded 400 parts per million last week, the highest level in 4.5m years.
As he says, if we take a prudential view of public finances, then surely a similar approach to something irreversible and much costlier” is warranted.< Read more
How much of the oil and gas sector’s asset valuations could be at risk from climate mitigation policy?
The International Energy Agency’s latest annual World Energy Outlook, released in November, followed the popular practice in long-term forecasts of using several scenarios. One involves global policymakers moving to limit atmospheric CO2 concentration to 450 parts per million, in order to limit to 50 per cent the probability of average temperatures rising 2 degrees or more.
The problem for fossil fuel companies is that could limit their ability to utilise all their reserves. Read more
This is the most awesome chart we’ve seen since Lisa’s Starbucks tax graphic: Goldman Sachs comparing the attention given to climate change, the eurozone crisis, and Justin Bieber. Read more
There is dystopian financial innovation and there is financial innovation for dystopia.
Here’s an idea from an Asian Development Bank study into dealing with costs from climate-induced migration (H/T Artemis). The future costs of millions moving from affected areas, infrastructure damage estimates, etc, remain highly uncertain. So…
A global climate deal to extend the life of the Kyoto treaty and establish the parameters for negotiating a new pact by 2015 will provide a fresh stimulus to the world’s floundering carbon markets, according to bankers and analysts, reports the FT. Carbon prices have plunged to record lows in recent weeks as Europe’s emissions trading scheme, the world’s largest, has been hit by eurozone uncertainties and fears of an oversupply of carbon credits. Other carbon market analysts welcomed the salvaging of the Kyoto treaty, noting that some countries in Durban had threatened to try to kill off the carbon offset market created under the treaty if the conference rejected its extension. Negotiators agreed to new market mechanisms to put a price on carbon, though many details were left undecided, and it is far from certain the agreement to agree will amount to anything, explains the Guardian.
The US, backed by Saudi Arabia, is refusing to sign off on a flagship global climate fund, the FT reports, days ahead of an important UN climate summit. The fund is one of the few measures to emerge from seven years of talks on how countries should share the burden of cutting greenhouse gas emissions, which risk raising global temperatures to dangerous levels. At the same time, the price of carbon permits in the European Union, whose members are virtually the only wealthy countries willing to offer conditional backing for a new phase of the Kyoto pact in Durban, crashed to record lows of €7.80 on Thursday, — in part due to eurozone debt crisis, but a UBS report claiming the schem was not working also unnerved investors.
International scientists have presented fresh evidence into the debate over global warming, saying that climate change is “undeniable”, in the first major piece of research since the “Climategate” controversy, the FT says. The research, headed by the US National Oceans and Atmospheric Administration, is based on new data not available for the UN’s Intergovernmental Panel on Climate Change report of 2007, which has been attacked by critics.
Forget equities, forex and even fixed income, emissions trading is where it’s at currently.
As a bid battle rage for EcoSecurities, the Intercontinental Exchange has just picked up a 4.8 per cent holding in Climate Exchange, the dominant carbon trading exchange in Europe. Read more
As if things couldn’t get much worse, the banking crisis is also exacerbating global warming.
The below chart, from the European Climate Exchange (via Hellasious at Sudden Debt), shows how. Read more