Green Markets #2
Financial news in environmental markets.
Green Markets is a weekly series dedicated to highlighting events of interest or developing trends within environmental markets. The emphasis is on news that could impact investable opportunities in public stock markets.
Canadian Carbon Tax
Canada is set to increase its carbon tax today— from C$65 per metric ton of carbon to C$80. The cost is expected to reach C$170 by 2030. This is in an effort to reduce the country’s carbon emissions by 40-45% below 2005 levels by 2030.
Facing significant political backlash, the Liberal Party in Canada is likely to lose in the country’s next election. According to a recent survey by Abacus Data, the Conservative Party would win by 18 percentage points. Given that reality, it’s difficult to see how the carbon tax is even going to survive until 2030. At least not further pricing increases.
The funny thing is that the tax is reportedly revenue-neutral. According to the Canadian government, most Canadians will actually receive more money back in rebates than they spent on fossil fuels.
Regardless, carbon taxes and emissions trading schemes are putting a price on carbon emissions, and this is causing a change in corporate behavior. Companies like Aker Carbon Capture (ACC) are reporting record levels of interest from businesses in North America.
With indicative pricing between $55-120 USD per ton, carbon capture services are creeping toward economic viability in these regions.
Carbon capture is slowly but surely becoming a cost-saving initiative for carbon-intensive industries. The financial incentives are only growing…
DOE Decarbonization Funding
Beyond providing financial incentives through taxes or pricing, governments are also allocating increasing levels of funding to decarbonization efforts.
The US Department of Energy (DOE) is distributing $6B in funding to 33 projects that aim to reduce emissions in energy-intensive industries.
$489M of that capital is coming from the Biden administration’s Bipartisan Infrastructure Law, and the other $5.47B will be sourced via the Inflation Reduction Act.
Funding is being allocated to a variety of sectors, as explained by Jennifer L from carboncredits.com:
The chosen projects for award negotiations include a range of difficult-to-decarbonize industries, with representation from various sectors, including the following breakdown:
7 projects in chemicals and refining,
6 projects in cement and concrete,
6 projects in iron and steel,
5 projects in aluminum and metals,
3 projects in food and beverage,
3 projects in glass,
2 projects focused on process heat, and
1 project in pulp and paper.
Even with political opposition continuing to grow, the push toward net-zero is gaining momentum in unison. Unfortunately, this can either strengthen or wane based on who is elected to public office.
That’s why I like to prioritize investments that aren’t dependent on receiving government handouts to remain economically feasible, but this is a topic for another post.
Pemex Net-Zero Plans
Pemex, Mexico’s state-owned oil company, has pledged to reduce its emissions by 54% by 2030 and to reach net-zero as a company by 2050.
As of 2022, Pemex produced 1.7M barrels of oil per day. To offset its emissions, the company is allocating between 14-18% of its capital expenditures in 2024 to green projects. Another 10-14% of their annual budget will be used for the same initiatives from 2025 until 2030.
Some of the methods they’re looking at to reduce emissions are phasing out gas flaring and utilizing carbon credits.
Pemex joins a long list of O&G companies, among other industrial firms looking into offsetting their emissions with carbon credits. Even if carbon capture can be implemented in most situations, there are still significant “hard-to-abate” emissions that need to be accounted for. The only option in that scenario is carbon credits.
SBTi Continues to Reject Carbon Credits
A recent survey found that there’s growing pressure for SBTi to accept carbon credits as a valid method of reducing emissions.
The Science Based Targets initiative (SBTi) is an organization created by the Carbon Disclosure Pact, United Nations Global Compact, World Resources Insititute, and the World Wide Fund for Nature. Their goal is to enable companies to create scientifically grounded emissions reduction targets.
SBTi is tracking around 8,200 companies in total. 5,100 of those companies have declared science-based targets that the organization has approved. 3,000 of them have committed to reaching net-zero in a variety of different timelines.
For now, SBTi doesn’t allow the use of carbon credits toward Scope 3 or other scientific-based emissions reduction targets. This will have to change, as it’s simply impossible for companies to reach those estimates otherwise. The firm refuses to back down, however.
In another article from Carbon Pulse, SBTi has declared that they’re unwilling to “bow to pressure” and see carbon credits as a valid means of offsetting emissions. I understand their hesitation. The carbon markets have their problems, but this is a case of “throwing out the baby with the bath water.”
Linking NA Carbon Markets
The cap-and-trade systems in California, Quebec, and Washington are exploring the potential of a broader Western Climate Initiative compliance market. Aka, the three states/provinces are looking into linking together, which could take a few years to complete.
In this scenario, carbon allowances from any of the three jurisdictions could be used in one another’s respective markets. Additionally, they would hold joint auctions to sell the yearly cap of allowances. The carbon price in all three areas would merge into one joint price.
It’s unclear what effect this would have on the price of allowances in this region. I am unsure whether this would lead to price appreciation or depreciation. I assume it would lead to a decrease in price, therefore bad for investors due to a higher supply of allowances compared to a lower increase in demand. But that’s speculation on my part.
The Governor of Washington, Jay Inslee, recently signed Senate Bill 6058, which allows for the state to facilitate a potential merger.
Last week’s Green Markets post:
