Friday Climate Focus: Carbon Taxes = Monopoly money, Rockstars commission Climate Research, and more
Friday Climate Focus #3
In Today’s Edition
#1 - Your favourite musicians are saving the planet… using science
#2 - The Biden Administration calls climate change a ‘systemic-risk’. It is a massive development for a few significant reasons
#3 - Boris Johnson’s government is very enthusiastic about their net-zero strategy in the run up to the Glasgow summit. It’s not as straightforward to put money where their mouth is.
#4 - Austria introduced a carbon tax. It’s like when we play board games.
#5 - Bonus - Pension funds promise emission cuts; Green transition is easier when your customers want it
#6 - Banter - Australia’s climate ambition (or the lack thereof) makes it to Times Square; Be like Ryan and make unpopular choices
Welcome to the 3rd edition of Friday Climate Focus - a weekly curation of the most recent climate developments of significance, with context and without the end-of-the-world overture.
(This week, I am consciously steering clear of events unravelling in the US, primarily because every day seems to bring twists that would have M. Night Shyamalan second-guessing himself. What’s happening, you ask? The Democrats are negotiating inclusions and exclusions to the Clean Electricity Performance Program (CEPP) with … the Democrats. We can expect a final outcome on the deal by next week, one way or another, before the climate summit)
Let’s dive in.
Every Emission Cut is a Waterfall
Chris Martin and co., announced their new world tour in 2022 and alongside it, committed to reduce their carbon footprint to 50% of what it was when they did their last world tour in 2016-17. To their full credit, the band had already announced at the release of their last album in 2019 that they would stop 'live touring' until they figured out a way to make it environmentally beneficial.
And here we are. Mission Low-Carbon-Concerts includes -
— a ‘kinetic floor’ to harness the energy created by fans during the shows
— batteries and mains powered by renewable energy; solar panels to be setup in the buildup to each show
— route optimised for minimising flights; the band pays a surcharge for sustainable jet fuel
— discounts for fans who commit to low-carbon travel, and more
The music industry has been reckoning with its substantial carbon output from touring, generated by transporting not just bands but large stage sets and crews from continent to continent.
The true pioneers are however Massive Attack, the English Electronic Band.
Massive Attack had been offsetting their carbon footprint from tours for years, and decided that it wasn't sufficient to just do that. Instead of continuing to purchase these offsets, they went ahead and commissioned the University of Manchester to conduct a study in 2019. The report, that came out this June, includes actionable information on how to reduce the carbon footprint in tours and concerts, including ditching private jets, bringing fewer gear, and changing their energy profile during these shows.
Rockstars are nudging each other to be responsible, commissioning science-based climate research, and lowering the carbon footprint of concerts.
(I would never have imagined writing those word, in that order)
Do Roadmaps for Climate Action Lead To Actual Roads?
Someone has finally said it - that climate change is a systemic financial risk.
The Biden government announced a roadmap last Friday to “measure, disclose, manage, and mitigate the systemic risks” that climate change poses to the US financial system. (Assist to the Reader: remember the italicised part when you reach the end of the newsletter)
Why is calling it a ‘systemic risk’ significant?
Climate change is not an abstract idea. It is rooted in the lives of the people and businesses affected by it. The decision to classify it as a systemic risk ensures individuals, investors, businesses, as well as various levels of governments, are accounting for future climate scenarios in their risk management strategies
But it is mostly significant because now we can expect exponentially higher data that is important for all these actors to make climate-adjusted decisions
Well, isn’t this just a roadmap?
Yes, but it’s also a little more than that.
The timing of it is important. It relays intent quite clearly, and as unfortunate as it is, climate optics do a world of good during international negotiations..
"That term, systemic risk, carries a lot of weight," Bharat Ramamurti, deputy director at the National Economic Council, told reporters […]
“Its inclusion in this roadmap reflects our belief that because many financial models and investment portfolios still rely on out of date assumptions of climatic stability, climate change is already creating severe disruptions to our economic and financial system,” he said.
Where are the roads?
There are three big areas where more details are expected to emerge in the coming months -
a. Building resilient infrastructure and communities through climate risk-adjusted government programs, procurement, and lending, including federally insured or guaranteed mortgages
b. Protecting savings and investments from climate risks, starting with higher transparency in disclosing climate risk exposure for banks, institutional investors, insurance companies, pensions and retirement savings
c. Facilitating the sustainable transition by arming climate-conscious investors to allocate capital to public companies based on climate action, through mandatory disclosures on material climate risks and economic implications of various climate scenarios
This month, more than 20 federal agencies published climate adaptation plans revealing the biggest threats climate change poses to their operations and facilities and how they plan to handle them.
The roads are coming. We just have to be patient.
Will Boris Johnson Find The Money?
Boris Johnson’s Cabinet of Ministers outlined their detailed Net-Zero strategy earlier this week. It includes a lot of good elements and misses a few critical ones. (Here’s a decent summary and a quote below that captures the criticism with amazing brevity)
In the run up to COP26, Boris Johnson’s international rallying cry was ‘coal, cars, cash and trees’. The Government’s long-awaited domestically-focused Net Zero Strategy can perhaps best be described as ‘Heat pumps, hydrogen, and hope.
Although, it does have what the UK hopes to achieve with a level of detail that you can come to expect from the host of a global climate summit, it has a significant omission
Net Zero = (Political Will + Technology + Funding)
There are three non-negotiables to a net-zero transition - policy and political will, viable and scalable technologies, and funding. It is not a situation where you need more of one, and less of the others, but one where you need everything simultaneously and in abundance.
The political will is evident (for now) from the Prime Minister’s effervescent announcements. The strategy is also believed to show a decent understanding and judgement about which technologies to back. While it tells us where the money will be spent, details on where the money will come from are rather sparse.
Boris Johnson stopped short of guaranteeing that he can deploy billions with the approval of the Chancellor. But the said chancellor, Rishi Sunak, has long been wary of the politics of a green transition, especially in the buildup to the Glasgow summit.
Where’s the money?
On the day, Boris and his ministers announced the strategy, an equally significant document emerged from Rishi Sunak’s Treasury Department - a Net Zero Review Final Report. Here’s an excerpt that describes what the report covers.
The Net Zero Review is an analytical report that uses existing data to explore the key issues as the UK decarbonises. This is set against a backdrop of uncertainty on technologies and costs, as well as changes to the economy over the next thirty years.
There is a lot to breakdown in the 135 pager document, but the following two points capture the essence of my argument.
Global action to mitigate climate change was ‘essential to long-term UK prosperity’ and ‘that the costs of global inaction significantly outweigh the costs of action’.
If there is to be additional public spending, the government may need to consider changes to existing taxes and new sources of revenue throughout the transition
UK will need all 3 essentials to a net-zero transition simultaneously, and balance the pressures of increased public spending with possibly lower tax revenues.
Most importantly (and perhaps as a 4th non-negotiable), UK will need endurance in its climate strategy to sustain the political will, technology development, and funding, for the next 30 years.
Tax The Citizens For Emissions; Return It As Tax Cuts
Austria tried to introduce a carbon tax in 1991. It succeeded in its endeavour earlier this month.
A carbon tax essentially charges for every unit of pollution, and is implemented by the government at at a manufacturer-level or at a consumer-level. The idea is to make emissions unattractive by putting a price to it, and nudging businesses and citizens towards low-carbon alternatives.
Austria has priced it at €30 per tonne of Carbon, rising to €55 by 2025.
The measure will initially translate to an extra cost of 10 cents on the litre at petrol stations and also €130 more for the average Austrian household’s annual heating costs.
Government receipts from the carbon tax are expected to be passed on to the citizens through tax cuts. It is estimated to cost around €18 billion by 2025.
Of course, I have views about this
A carbon tax in Austria, as things stand, is remarkably similar to ‘monopoly’ money, which only serves the grand objective of familiarising its population with the idea of carbon taxes.
The tax has been introduced is alongside another initiative called a ‘climate ticket’ which is a very heavily subsidised travel-pass to move its citizens away from combustion-engine cars towards public transportation.
I am personally a fan of carbon taxes and think that well-functioning carbon markets are a very strong policy lever to curb emissions.
But when the tax is substantially lower than ideal levels, and the government is routing collections back to its citizens through tax cuts, it is going to be difficult to break default behaviour, i.e, get people to stop driving their cars.
The climate ticket will probably keep the number of new cars added to lower than normal levels, but that doesn’t help a country with a high density of motor vehicles per capita already.
Note:
In the interest of full representation and to not be particularly unfair towards one particular country, Austria is not too far behind other EU countries. Germany introduced a carbon tax at €25 per tonne earlier this year, rising to €55 by 2025; the Netherlands charges €30 a tonne and France is at €45 per tonne)
This is substantially low compared to Sweden, the gold-standard for carbon taxes which has priced it at €120 per tonne (the highest in the world). When Sweden introduced the tax, also in 1991 but with a different outcome, it was priced at €24 per tonne then. Studies suggest that a carbon tax around the range of Sweden’s will be required by 2030 for achieving most of developed countries’ climate pledges.
(P.S. - This is the list of countries with a version of carbon tax as of last month, prior to the inclusion of Austria)
Bonus:
Pension Funds Commit to a 25% drop in Portfolio Emissions by 2025
29 of the largest pension funds in the world have committed to reducing their portfolio emissions by 25% to 30% in the next 4 years.
These pension funds are a part of the 56-member Net-Zero Asset Owners Alliance and hold positions in public companies, corporate bonds, and real-estate.
— My $0.02
Committing to achieving this by 2025 is phenomenal on the part of the asset owners. And the types of emissions they have agreed to reduce is the most that can be done right now.
The commitment extends to onsite emissions generated by the portfolio companies (Scope 1) and off-site emissions from electricity purchases by these companies (Scope 2), and only track Scope 3 emissions until better data begins to emerge. (And that’s where all attention should be directed towards)
Scope 3 emissions are the holy grail of climate action, although it is incredibly hard to calculate. It includes all emissions from conducting business along the entire value chain.
Here is an infographic that illustrates different emissions quite clearly -
Shipping Is Getting an Upgrade
— My $0.02
It’s a lot easier to transition to emissions-free options when your paying customers want it. However, these commitments cannot be fulfilled without the rapid development of zero-carbon marine fuels. It should also be priced competitively compared to traditional fossil-fuels. One option to do this is to tax the higher emission alternative, but this time, let’s not give it back to the shipping companies (I am still not over Austria)
Banter
What’s it going to take, Australia?
Be like Ryan
Remember the italicised part from earlier? The internet is beautiful.