Carbon offsets have a huge new problem -- wildfires; plus, private equity's ESG play

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A pyrocumulus cloud from Oregon’s Bootleg Fire can be seen for miles as it burns in the Freemont-Winema National Forest. As of Thursday night, the fire had burned more than 400,000 acres, including forest that had been preserved to compensate for greenhouse gas emissions elsewhere. Photo: National Interagency Fire Center.

As if the world of calculating forest and natural assets to be used as carbon offsets for big polluting businesses isn’t complicated enough, now there’s a huge new, unexpected issue. Wildfires are threatening the underlying nature itself.

One big fire in Southern Oregon, the Bootleg Fire, has already torched about a quarter of the land set aside for carbon offsets and two more threaten an Indian reservation carbon offset project in Washington state.

Companies who produce greenhouse gases pay nature and forest reserves to maintain and build themselves out to help trees pull carbon from the atmosphere. The offset allows the companies to claim they are carbon neutral. The more they pollute the more they pay. A growing financial market for offsets in Europe, the UK and now China is based on the premise these assets can be correctly measured and managed.

That premise routinely comes under fire, as one forest is different from another, some trees in the same forest suck carbon at a different rate then others and, of course, there’s no way to tell how a forest used as an offset today will look 100 years from now. Now the natural land is coming under fire literally.

The impact of the fires is already generating calls from advocates who argue carbon output needs to be reduced at its source, not offset with money and accounting gimmicks, according to Politico. Those are legitimate arguments but as we are nowhere near approaching a global scenario like that, offsets are our best shot to make polluting more expensive and ultimately reduce it.

In the investing world, we call these developments Black Swans. Something completely unexpected that comes along and upends markets. Kind of like China’s sudden attack on its tech industry this summer, and its impact on Chinese stocks worldwide. It is another sad and ironic tragedy of climate change that global warming itself is destroying the very tools we have to fight it.

More insights below. . . .

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ZEUS: Paulson's new climate fund heralds private equity era in ESG

. . . . New cash raised and deployed by the private equity industry seemingly knows no bounds this year, and now some of the bigger guns are setting their targets on climate solutions, writes David Callaway. The TPG Climate Rise fund, started by Jim Coulter and former U.S. Treasury Secretary Hank Paulson earlier this year, made a splash this week by saying it’s already raised $5.4 billion. The money represents a big new player in climate solutions, along with traditional venture capital and asset managers. And a stark dichotomy from the somewhat paralyzed world of global diplomacy. Private equity has finally awoken to the importance — and opportunity — in climate solutions investing after watching investors score returns on ESG strategies the past two years. How and to which startups it deploys will be a key investment theme of the next two. . . .

Read the full ZEUS column

Thursday’s subscriber insights: Biden to renew auto mileage rules overturned by Trump, and then some

. . . . India is fast becoming the villain of the week in diplomatic climate circles after skipping a pre-COP26 ministerial meeting in London Monday on the heels of its rejection of a G20 plan to require the reduction of coal use worldwide, along with China. A spokesman said its position was clear so no need to attend. This is a bad time for big countries to break away. Read more here. . . .

. . . . Renewing Obama-era regulations on auto emissions that were overturned by former President Trump is an emerging plank of President Biden’s climate plan, but without innovation in electric vehicles to match they can only go so far. How these two concepts stay in pace will determine the success of the transition. Read more here. . . .

. . . . The on-again, off-again Biden infrastructure plan gained some small ground in the Senate this week and we were relieved to see that $7.5 billion for EV charging stations had made the most recent cut. While that’s about half of what was originally intended, any spending is vital to help drivers become more secure making the transition to electric vehicles. More to come on this. . . .

. . . . Our piece last week forecasting the Olympics in Tokyo to be the hottest in history hasn’t failed to disappoint. Extreme heat has plagued several events and yesterday led to the movement of times for the tennis event after one player had to be carted off in a wheelchair and world No. 2 ranked Daniil Medvedev said he could die if he continued playing. And the track and field events are still to come. . . .

. . . . Several fossil-fuel giants are using the recovery in oil prices to reassure investors as they move into a more cutting-edge green world. While one might think high prices could tempt oil giants to drill more and reel in the moolah, recent shareholder pressure seems to have pushed them to use the current bonanza to pursue a longer-term game. Read more here. . . .

. . . . SEC Chair Gary Gensler says his agency is likely to require public companies to outline their carbon footprints, with, he said, the SEC currently weighing a mix of “qualitative and quantitative” disclosure requirements. It appears he’s taking hard aim at greenwashing. Read more here. . . .

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Editor’s picks: Nikola founder charged with misleading investors; plus, BCG Green Ventures, and Formula 1 EVs

Nikola’s Trevor Milton charged with misleading investors

Nikola Corp. founder and former chairman Trevor Milton has been charged by prosecutors with making false statements to investors in the electric-vehicle startup. Nikola (NKLA) shares were down more than 9% in midday trade Thursday. According to a report from Bloomberg, Milton, who left the company last year, is in federal custody after voluntarily surrendering. He’s charged with misleading investors from November 2019 until around September 2020 about the development of Nikola’s products and technology, according to an indictment unsealed Thursday by federal prosecutors in N.Y. A separate complaint filed Thursday by the SEC stated “Milton sold a version of Nikola not as it was — an early-stage company with a novel idea to commercialize yet-to-be proven products and technology — but rather as a trail-blazing company that had already achieved many groundbreaking and game-changing milestones.”

BCG launches offering for climate-focused ventures

Boston Consulting Group (BCG) and its corporate innovation-focused arm BCG Digital Ventures announced the launch of BCG Green Ventures, a new offering and team aimed at supporting the development and growth of climate action-focused technologies and businesses. ESG Today reports that BCG Green Ventures will initially focus on high-impact decarbonization ventures targeting the largest cross-sector sources of greenhouse gas emissions to drive climate action at scale. The company will partner with corporations to invest in, build and scale sustainable businesses, while supporting corporations on the transition to a new zero economy.

Formula One world champ Nico Rosberg: ‘Save our planet’

Nico Rosberg says, “I’d encourage all sports teams to utilize their platform to help save our planet.” Since retiring, the winner of 23 Grands Prix has invested in start-ups such as sustainable aerospace company Lilium and e-scooter micro mobility company, Tier. He is also an investor and shareholder of the all-electric racing series Formula E. Rosberg’s latest venture is Rosberg X Racing, which “will evaluate, test and champion emerging technologies that improve sustainability and reduce society’s impact on planet earth.” His team is currently competing in the new electric racing series, Extreme E which sees drivers of 550-horsepower electric SUVs competing in some of the world’s remotest environments in order to draw attention to the impacts of the climate emergency. Read this interview with Rosberg as he discusses the power of sport, gender equality and the future of e-mobility from the United Nations Climate Change’s Race to Zero.

Latest findings: New research, studies and projects

Switching to cleaner energy can save 400,000 lives a year in the U.S.

The U.S. can achieve net-zero carbon emissions by 2050 while creating half a million new jobs, modernizing the energy infrastructure, and avoiding hundreds of thousands of needless deaths, according to the comprehensive Net Zero America study by researchers at Princeton University. The study concluded that the price tag for a major energy transition would be no more than the current system costs. Karen Kirk reports for Yale Climate Connections that “the results of the Net Zero study are even better than they appear at first glance, because the transition to renewable energy can partly pay for itself, simply because replacing fossil fuels would mean fewer people die from air pollution. Though the primary motivator in adopting clean energy is to reduce climate-warming greenhouse gas emissions, cleaner air is an enormous co-benefit. Phasing out coal, natural gas, and internal combustion engines has immediate, local, and concrete effects on air quality and human lives. A recent study found that air pollution from fossil fuels kills 8 million people per year, worldwide. In the U.S. alone, a 2019 study estimated that fossil fuel use causes over 50,000 deaths and $445 billion in economic damage annually.” 

Check out this interactive graphic that shows how many deaths could be avoided in each state.

More of the latest research:

Words to live by . . . .

“Throughout this cycle, we have been telling the world that science has spoken and it’s now up to the policymakers for action.”Hoesung Lee, chair of the Intergovernmental Panel on Climate Change, speaking at opening of the group’s 54th session this week.