Clean energy stocks and the election; plus Wall Street's climate impact fears

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Above, smoke from fires raging on the west coast of North America are visible Thursday in this NASA Earth Observatory image by Lauren Dauphin.

The Commodity Futures Trading Commission’s seminal report on the impact of climate change on financial markets this week marked the first time a wide-ranging panel of U.S. regulators and market players laid out the coming issues with climate change and how it could harm investors.

In addition to the specific recommendations laid out in my ZEUS column yesterday regarding new derivatives and disclosure rules tied to climate risk, the report was notable in how far it strayed beyond the CFTC’s remit of commodities futures trading. It advised what central banks should do, what the Securities and Exchange should do, and what the federal government should do. That included pulling back the ridiculous idea of limiting ESG motives in the managing of funds.

As such, it received mixed political reaction, with some critics saying it was an overreach by players who would benefit from the recommendations, including new derivatives markets. The most refreshing part about it, though, was the presence on the panel of executives from Cargill and ConocoPhillips (COP), who both made it clear they supported it in terms of opening new dialogue, if not every recommendation.

While just an opening shot from Wall Street, the report will be greeted as a guidepost by regulators in Europe, who have long been waiting for their U.S. counterparts to put aside politics and weigh in with real ideas.

More insights below. . . .

And don’t forget to contact me directly if you have suggestions or ideas at dcallaway@callawayclimateinsights.com.

Clean energy stocks: the Biden impact

. . . . Market forecasters would think the call on clean energy stocks would be easy this election season. Joe Biden is for them. President Trump, not so much. But a data study by Mark Hulbert of renewable energy companies’ strong stock performance this year suggests that they are not so much tied to the election as to other external factors. While industries do sometimes turn on who gets into the White House, in this chaotic year, ESG investors should look to other criteria for a teaching moment.

But what these results do suggest is that there are more powerful factors affecting clean-energy stocks than electoral politics. The course of the Covid-19 pandemic is one obvious factor. But there are others, such as California’s extreme heat and raging wildfires, which make it even more obvious than it was previously that climate change is real.

Another less-obvious factor is the price of oil, since clean energy stocks tend to do better when the price of oil is higher. That’s ironic, since most environmentalists want the price of oil to decline — eventually to zero — as global economies hopefully shift away from a reliance on fossil fuels. Over the short and intermediate terms, however, a lower oil price means that alternative energy sources become less competitive. . . .

Read the full story


ZEUS: Notes from Pompeii as a carbon price becomes real

Above, San Francisco’s Bay Bridge on Sept. 9, 2020. Photo: Christopher Michel/flickr.

. . . . It is bad if the sun doesn’t come up? Wednesday’s end-of-world, orange skies gave way to showering ash and purple air Thursday as millions in the San Francisco Bay Area were warned to stay home to avoid unhealthy air quality, writes David Callaway. Covid-19 is invisible. Climate change can be seen. That’s why the CFTC report recommending a a global carbon price and how financial markets can get there was so seminal yesterday. Led by former Goldman Sachs risk executive Bob Litterman, the 196-page report was as interesting for its recommendations as it was that it came from a government entity tied to the Trump administration.

In short, it called current green finance efforts woefully short of the needed impact to bring in the big institutions, and outlined how a combination of massive disclosure and a derivatives market could help finance price, profit, and protect global market from the coming ravages of climate change.

“If we knew today what it would cost to pull carbon dioxide out of the atmosphere at industrial scale in the not too distant future, the present value of that cost would give us a good sense of an upper bound on where we should price carbon today,” the report said.

A guidepost for financial markets rising to the climate emergency no matter who is elected. . . .

Read the full ZEUS column


EU group votes to extend emissions cuts beyond far end of range

. . . . The EU Parliament surprised ESG markets Thursday after it voted to seek greenhouse gas emissions cuts of 60% by 2030, exceeding even the far end of its original range, write Daniel Byrne and Elizabeth Hearst. The vote locks the EU into the process of slashing emissions even as it seeks to revive its economies from the Covid pandemic. A formal vote will come next month.

Greenpeace said the move was a “step closer to what is needed to achieve the goal of the Paris agreement to limit global heating to 1.5℃.” Greenpeace’s EU climate policy adviser Sebastian Mang added that this vote “is the first sign that European politicians are moving away from what is politically easy towards what is scientifically necessary.”. . .

Read the full story


European notebook: Growing carbon market might delay adding autos

. . . . European Climate Commissioner Frans Timmermans warned this week against broadening the region’s growing carbon market to include autos next year, write Stephen Rae and Daniel Byrne. The comments reflected a temporary nod to the progress the industry is making toward adapting to existing emissions standards and moving toward electric vehicles. Autos currently represent about 12% of European greenhouse gas emissions.

Also, Poland is weighing a commitment to reduce its dependency on coal in favor of nuclear power in coming years, cutting coal to between a third and half of its energy needs by 2030. . . .

Read the full European notebook


Data driven: Ice, fire, flood

An annotated map of the United States showing notable climate and weather events that occurred across the country during August and Summer 2020. For text details and more information, see NOAA’s Assessing the U.S. Climate in August 2020.


News briefs: Reaching the Paris limit; Biden on gas, utilities

Editor’s picks:

  • UN report: Global temps may exceed Paris limit in next decade

  • How Biden's planned tax cut rollback will hit gas, utilities sectors

  • Tracker follows Covid-19 recovery pledges for energy spending

Read all the news briefs


Latest findings: New research, studies and papers

Palm Springs from Chino Canyon. Photo: Leonardo Stabile/flickr.

Climate change will scorch Palm Springs, Coachella Valley tourism

A new study from the University of California at Riverside finds that climate change will have a devastating effect on the greater Palm Springs area's dominant industry — tourism. Due to climate change, the number of days above 85°F. between November and April is projected to increase up to 150% by the end of the century. Read more from Science Daily.

Ice-sheet melt: ‘worst-case climate scenario’

A recent report confirms that ice sheets in Greenland and Antarctica, whose mass-loss rates have been rapidly increasing, are matching the Intergovernmental Panel on Climate Change's worst-case sea-level rise scenarios. According to a report from the European Space Agency, the study, published in Nature Climate Change, compares ice-sheet mass-balance results from satellite observations with projections from climate models. The results come from an international team of scientists from the University of Leeds and the Danish Meteorological Institute, who are also part of the ongoing Ice Sheet Mass Balance Inter-comparison Exercise. 

Governing climate risks in the face of normative uncertainties

From the introduction: Dealing with risks has too often been considered to be purely a technical matter, based on classic definitions of risk in terms of numerical probability distributions. The literature on risk governance has emerged as a response to this. Many risks such as climate risks cannot be simply calculated as a function of probability and effect, because they are essentially “systemic risks.” That is, they are complex risks that involve uncertainty and ambiguity. The authors write that when governing climate adaptation risks, we need to identify and address normative uncertainties. This paper proposes a method for this.

Authors: Behnam Taebi, Jan H. Kwakkel and Céline Kermisch

Available through the Wiley Online Library.


Above: Cape Henlopen State Park, Delaware. Photo: Michele Dorsey Walfred/flickr.

Words to live by . . . .

“We are moving toward 3 to 5°C. above pre-industrial era by the end of the century. We are not on track for the Paris Agreement.” — UN Secretary-General Antonio Guterres, speaking about the 2020 United in Science report.