Introduction

Welcome to our Snippets newsletter which as always endeavours to provide coverage of developments in energy and environmental issues, from both here in New Zealand and around the world.

We open this week with an article we believe will get you thinking. The new mayor of Turin, Italy, is controversially making moves to regulate the city to vegetarianism. Although other cities such as Barcelona have already implemented similar initiatives, the citizens of Turin are pushing back against these proposed measures. With almost a quarter of all global GHG emissions attributed to agriculture and food production, and 80% of that figure attributed to livestock, the idea is with good reason. This does however raise the question about the extent of regulations, and even when well-intended, might they go too far in limiting individual choice? As we move into an ever resource constrained world, how do we strike a balance between the benefits to society vs. those of the individual? Bound to be some interesting discussions going forward ^[1].

In a case in point, the Filipino government has given 47 major carbon emitters a deadline to respond to the claims that their emissions have violated the human rights of millions of their citizens. As one of the first cases in the world, this hopefully will assist in shifting the thinking that a ‘right’ to emit GHG is not without consequences. The case is being handled by the Philippines Commission of Human Rights (CHR) which, whilst not a court and unable to impose any legal ramifications on these organisations, can assist the government in recommending shareholders divest from these organisations ^[2].

Alternatively, organisations that appear to be taking climate change seriously are working hard to reduce emissions and influence their supply chains to do the same. In leading by example, organisations that are publicly disclosing data to the CDP showed interesting trends in how offsets were achieved. Most appeared to be generating offsets by better management of their supply chains, with one organisation (L’Oreal) providing cleaner-burning stoves to the women they source their Shea nuts from, even though the benefits do not directly occur to the organisation. This shift in thinking is reassuring and instills belief we are only going to see more of this sort of behaviour in the future ^[3].

One market sector that is undergoing rapid change is transport. We review a number of these from the humble bicycle, to cars, trucks and air travel.

Electric bicycles (e-bikes) continue to be the highest selling electric vehicle (EV) on the planet, with nearly 35 million unit sales forecast for 2016. Continuing improvements in battery technology are resulting in e-bikes that are lighter, lower in cost and very similar to traditional bicycles. Oh, and as we are in Wellington, far easier to tackle our hills, and therefore a viable alternative to other modes of transport ^[4].

The downside of all bicycles however, is you get wet if it rains. Perhaps a microcar could be the answer? A little more expensive than e-bikes, micro cars are perfect for getting around town and are generally just one or two seater vehicles, powered by battery only or a combination of engine and battery ^[5].

Electric vehicles are now perceived to be a mainstream alternative to the traditional combustion engine vehicle. Perhaps we can even share rather than own them? Singapore is doing just that, with the announcement of its first EV Car sharing programme. It will be the second largest EV fleet in the world starting at 125 and 250 chargers with a goal of 1,000 and 2,000 chargers by 2020 ^[6]. Even heavy trucks are electrifying. Mercedes Benz recently unveiled an urban e-Truck with a range of 200 kilometres, and a reasonably quick charge time of 2 to 3 hours ^[7].

We wrap up a review of changes within the transport sector with jet biofuels. Biofuels have a big part to play in reducing aviation emissions and developments in biofuels and other aircraft related technologies in this area are gathering pace. It looks like big oil’s dominance in the transportation fuel market — jet fuels, diesel and gasoline — is coming to an end, under threat from alternative fuels and battery technologies ^[8].

While jet fuel is projected to change to meet the challenges of the climate crisis, another type of ‘fuel’ has already changed: money. Once characterised as unbankable technologies, solar and wind power projects are receiving increasing amounts of financing from traditional sources, such as banks and pension funds. Money is flowing into renewable energy projects, whose risks are now better understood and whose returns are reliable and predictable, with green bond volume in 2016 estimated to be more than double that of 2015 ^[9].

This all raises a salient question: what other progressive technologies should bankers know about in order for them to invest? The answer may be partly in the Global Innovation Lab for Climate financing, where financial innovators receive support in the development of financing solutions for climate change mitigation and adaptation. The lab is a brilliant example of how fresh ideas and education can show the finance community that their model is compatible with the transition to a climate-friendly energy and resource infrastructure, and that often threats come from old-thinking, and opportunities from new-thinking ^[10].

Apple understands what it means to ‘think different’, evidenced by their recent issuance of green bonds to finance renewable energy, energy efficiency and water conservation projects. Alongside Starbucks and other mega corporations, Apple is creating opportunities to improve the bottom line for themselves and sustainability minded investors. Not to mention their goodwill amongst consumers isn’t hurt by their concern for the environment ^[11].

But concern for climate change isn’t uniformly distributed amongst the corporate and financial communities. In fact, one of the most risk-averse industries doesn’t seem to be hedging against climate risks as their reputation might lead one to assume. A recent report shows insurance companies are lagging when it comes to taking action to protect their portfolios against climate risk – perhaps because the immediacy of their policy obligations drives the seeking of immediate returns in the financial markets? Or perhaps because if climate risks/events were universally accounted for, they’d suddenly find they needed a lot more capital in reserve to pay out the expected claims? ^[12]

Following on from this, businesses and investors need to ensure they are prepared for a future where there is significantly less water available. Water use is predicted to increase hugely over the next 10 years, and by 2030 there is likely to be a 40% gap, or a $63 trillion risk to business, between supply and demand. Very few currently consider water when looking at investments, and both companies and investors need to include water risks in their due diligence when assessing the risk of an investment: an investment in increased, or new, production by a company; or investment in a business by investors of capital. Stranded assets may not only be the domain of fossil fuels companies and investors ^[13].