Informing the journey to net zero and carbon neutrality
Net zero and carbon neutral commitments are on the rise in 2021, as companies, financial institutions and countries assert their alignment to global climate goals. The journey presents mission critical considerations for all market participants. In celebration of Earth Day 2021, S&P Global has launched a new intelligence hub of research and insight informing the path to decarbonization — the challenges, the costs and the opportunities to help you make decisions with conviction.
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NEW India CEO Series
The energy transition is changing the landscape of the oil and gas industry, and India. S&P Global Platts interviewed executives from five of India's largest oil and gas companies. Read the interviews to learn how India's oil and gas industry is navigating the COVID-19 pandemic while finding solutions to the country's insatiable appetite for energy.
From oil to hydrogen, IOC says energy transition to have room for all
Interview with Shrikant Madhav Vaidya, chairman, Indian Oil Corp.
ExxonMobil eyes bigger footprint in India's energy transition journey
Interview with Bill Davis, CEO and lead country manager, ExxonMobil South Asia
Shell sees opportunity for India to recover 'cleaner and faster
Interview with Nitin Prasad, chairman, Shell Companies - India
India aims to cushion oil shock by doubling strategic petroleum reserves
Interview with HPS Ahuja, CEO, Indian Strategic Petroleum Reserves
Cairn Oil & Gas says oil price recovery will support India's upstream push
Interview with Prachur Sah, deputy CEO, Cairn Oil & Gas, Vedanta Limited
Retail gas, LNG by trucks, hydrogen figure in H-Energy's growth vision
Interview with Darshan Hiranandani, CEO, H-Energy
Introduction
In the growing climate change movement, “net zero” has become the buzzword. Over the past six months we’ve seen an absolute proliferation in companies and countries setting goals to reach net zero emissions by 2050.
While the concept of net zero seems straightforward at first blush, the path to achieving it is riddled with potential pitfalls.
Exxon board ouster marks tipping point for investor climate engagement
On May 26, shareholders voted to replace at least two members of Exxon Mobil’s board with people nominated by an activist investor group over concerns the company is not moving fast enough to address climate change. Shareholders have threatened for years to oust board members of companies recalcitrant about climate change. Last week’s action shows investors will follow through on that promise
Carbon Offsets
Key Takeaways
• Many companies are relying heavily on carbon offsets to reduce their CO2 emissions profile.
• But existing offsets can be of poor quality and outdated, making it difficult to measure the benefits they offer.
• Efforts are underway to improve the quality of carbon offsets so companies that buy them can make a meaningful contribution to fighting climate change.
To meet ambitious net zero targets, many companies plan to neutralize a large chunk of emissions by buying carbon offsets — credits generated by projects that are reducing carbon emissions elsewhere.
A company aiming for net zero can cut a portion of the greenhouse gas emissions emanating from its own operations. For what it can’t cut, it needs to find another option — such as a forest in South America that will absorb and store the carbon — to help net out those corporate emissions to zero.
About carbon offset markets
There are 2 types of carbon offset or carbon credit markets:
One is a mandatory or compliance market regulated by a national, regional or international carbon reduction regime.
An example is California’s cap-and-trade program, which starts with a cap on the total number of emissions companies subject to the program can directly produce annually and then lowers that cap over time with penalties for noncompliance. The goal is to lower total regional emissions over time.
The program splits the total cap on emissions into annual allowances, with each permitting a company to emit one ton of emissions. The program operator then distributes those allowances to companies through a combination of free allocation and by allowing companies to purchase allowances through auctions. The revenues from those auctions are then used by governments to fund low-carbon initiatives such as electrifying public transit vehicles.
Furthermore, companies that reduce their pollution faster than required can sell — or traded — allowances to companies that pollute more. Sometimes companies that are not regulated may also buy offsets from these regulated markets.
Voluntary markets, on the other hand, are not regulated and therefore come with a significant number of additional risks.
Voluntary markets require much more research and legwork by companies if they want to avoid purchasing offsets that provide no additionality.
There are some groups that offer offset certifications. For example, the Washington, D.C.-based nonprofit Verra offers the Verified Carbon Standard. Under that program, projects are issued unique carbon credits known as verified carbon units, or VCUs.
Verra currently has more than 1,280 projects with VCUs in its registry as well as several hundred without. Projects in the registry include renewable energy, forest and wetland conservation and restoration, and transportation efficiency improvements.
Clean Energy Credits
For most companies, the main source of greenhouse gas emissions is the fossil-fuel-based electricity they use. That's why, in pursuit of a net zero carbon footprint, many have promised to rapidly switch to "100% renewable energy." But a huge chunk of the wind, solar or hydro power that companies purchase isn't actual physical electricity, but tradable instruments called "unbundled" certificates. Under this system, a solar farm is allowed to sell its power to the grid and separately sell credits against that power to corporations and other buyers. A corporate buyer of these standalone credits may claim to have hit its clean energy goal.
But the transaction has little real-world impact: it doesn't necessarily help to displace fossil-based electricity, and it doesn't help much to decarbonize the grid.
Key Takeaways
Many companies that say they’re switching to renewable energy aren’t actually buying physical wind or solar power but instead cheap clean energy certificates.
The downside of buying these certificates is that they don’t always encourage the production of new wind or solar farms
That could undercut efforts to fight climate change, which require a huge expansion of clean energy to replace fossil fuel power.
Banks
If the world is going to achieve the lofty target of reaching net-zero emissions by 2050, one thing is clear: Banks need to take a leading role in financing the transition.
Limiting warming to 2°C by 2050 will require $3 trillion annually in investment, according to an estimate by the Intergovernmental Panel on Climate Change. And that means annual investment in low-carbon energy technologies and energy efficiency needs to be increased by roughly a factor of five by 2050 compared to 2015 levels.
The importance of the banking industry’s role in achieving net-zero goals was underscored on April 21 when 43 banks from 23 countries with $28.5 trillion in assets joined the newly-created United Nations-backed Net-Zero Banking Alliance, part of the Glasgow Financial Alliance for Net Zero chaired by U.N. Special Envoy on Climate Action and Finance Mark Carney.
Investment Industry
This is the final blog in a series examining the steps portfolio managers need to take to reach the goal of net-zero carbon dioxide emissions in their investment strategies by 2050. Previous blogs defined net-zero, looked at the creation of a carbon footprint, optimized a portfolio to make it carbon sensitive, and took further steps to improve optimization by selecting companies that are on track to meet the goals of the Paris Agreement. We wrap up the series by looking at the need for corporations to adopt science-based targets and be more transparent about their ESG strategies to be on the radar screens of investment firms.
Webinar
The global pandemic put a spotlight on the value of environmental, social and corporate governance considerations across all sectors. We saw an absolute explosion of net zero commitments from companies and countries surrounding the 5th anniversary of the Paris Agreement. With these new pledges, the United Nations estimated that by early 2021 countries representing around 65% of global CO2 emissions and around 70% of the world's economy will have committed to reaching net zero emissions or carbon neutrality.
Join S&P Global Market Intelligence for this webinar discussion, bringing together diverse perspectives from three of the world’s largest corporation within retail, energy and technology: Walmart, Duke Energy and AT&T on the challenges of meeting net zero targets.
Moderator
Lindsey Hall
Head of ESG Thought Leadership, S&P Global
Speakers
Kathleen McLaughlin
Executive Vice President and Chief Sustainability Officer, Walmart Inc.
Charlene Lake
Chief Sustainability Officer and SVP-Corporate Social Responsibility, AT&T
Carlo Funk
EMEA Head of ESG Investment Strategy, State Street Global Advisors
Further Reading
Getting to net zero will require a detailed understanding of underlying sources of carbon emissions – as well as forward looking metrics on physical and transition climate risks. Access the additional insights you need to understand the path forward on our Net Zero Topic Page. Updated daily, it contains all net zero insights published across S&P Global.
The 2016 Paris Agreement committed to achieve net zero emissions globally by the second half of this century, but progress to date has been worryingly slow. Stay up-to-date with the challenges and opportunities as governments and companies globally take on the net zero challenge.