Decoding Biden's climate plan, the rise of "S" in ESG & Merging self-driving and electric cars

The newsletter for people "woke" on carbon and climate

(source: Axios)

GOVERNMENT

Decoding Biden’s $2T clean energy recovery plan

After the worst recession in the last hundred years, Joe Biden wants to “build back better.” And that includes a large focus on clean energy and transportation. Let’s take a look at his new plan and focus on a few items that seem to have the most promise.

It’s a campaign document so let’s all accept from the outset that it’s thought proposal. What will ultimately matter is legislation advanced by a future Biden administration that actually gets through Congress (and House Democrats do in fact have their own climate plan and passed a bill recently to implement that plan, which has zero chance of passing in 2020 with a split Congress).

But let’s set aside skepticism for a moment and look at the merits of Biden’s plan.

Here’s the bullet point summary:

  1. Build a Modern Infrastructure

  2. Position the U.S. Auto Industry to Win the 21st Century with technology invented in America

  3. Achieve a Carbon Pollution-Free Power Sector by 2035

  4. Make Dramatic Investments in Energy Efficiency in Buildings, including Completing 4 Million Retrofits and Building 1.5 Million New Affordable Homes

  5. Pursue a Historic Investment in Clean Energy Innovation

  6. Advance Sustainable Agriculture and Conservation

  7. Secure Environmental Justice and Equitable Economy Opportunity

The biggest shift from Biden’s previous plans involves the money and timeframe for spending it: $2 trillion over four years, rather than the $1.7 trillion over ten years. Gaining support for this level of spending after the U.S. incurs up to $10 trillion in new debt in 2020 alone, in mitigating the effects of the pandemic, will be a massive lift for a Biden administration.

Now let’s touch on a few highlights in the Biden plan:

100% clean energy by 2035 nationwide. Very ambitious, but also achievable. It may even be achieved by market forces alone because solar, wind, and battery storage are all steadily falling in price.

Reform and extend tax incentives for energy efficiency, clean energy and clean energy jobs. This may be the single most ambitious policy proposal in the plan and involves little federal spending because it centers mostly around tax subsidies and incentives.

A new Advanced Research Projects Agency on Climate, to target affordable, game-changing technologies to help America achieve a 100% clean energy target.

A Civilian Climate Corps. Employ youths and able-bodied people of all ages in productive areas for installing and maintaining solar technology, being trained as technicians in all aspects of clean energy and green agriculture.

Disadvantaged communities to receive 40% of overall benefits of spending under the plan. It is notable that Biden recognizes the politics and importance of equity and justice in his plan. In practice, expect some targeted spending with the majority of investments deployed in any community with a legitimate need. Go deeper here LINK

Creed Comments: Biden’s plan is ambitious but it’s primarily a vision tool. Tam Hunt of pv magazine makes the great point that the plan calls for investing in 500,000 EV charging stations, but omits a meaningful “clean vehicle standard.” Should Biden win in November, we hope his team comes up with a strong plan to electrify the transportation sector. I remain very “bullish” on all of the above.


Issue No. 36 - July 19, 2020

Welcome to the latest issue of Carbon Creed - a curated newsletter for people “woke” on carbon and climate.

My name is Walter McLeod, and thanks for joining our tribe! We hope to hear from you as we navigate this weekly journey through the good, bad and ugly of carbon and climate. 

First, I want to thank all of you for sticking with me and helping to grow our community - we now have nearly 600 weekly readers! I am both humbled and thankful to publish this newsletter - thanks for your patronage.

I’m happy to inform you that we will feature an Open Thread this Friday (July 24th). I think it’s important to foster interaction among our community, and the open thread is the best way to promote that. I know some of you are shy about commenting in a group setting, but I assure you, this is a user-friendly crowd. There are no wrong or bad comments. Let me know if you have a topic you’d like me to feature.

You can ping me at mcleodwl@carboncreed.com.

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Now, LET’S GO DEEP!


CLEAN TECH

(source: 2021 BMW iFlagship; Level 5 AV/EV )

The merging roads of self-driving (autonomous) and electric vehicles

Cars have not been good for the environment, to put it lightly. Transportation accounts for 28 percent of US greenhouse gas emissions, and light-duty vehicles for more than half of those. Someday, self-driving cars will appear widely in the US. Wouldn’t it be nice if they also helped reduce greenhouse gas emissions?

Trouble is, making an electric car self-driving requires tradeoffs. Electric vehicles have limited range, and the first self-driving cars are expected to be deployed as roving bands of robotaxis, traveling hundreds of miles each day. Plus, the sensors and computers onboard self-driving cars suck up lots of energy—not great for range, either.

New research suggests that the tradeoffs for electric autonomous vehicles aren’t as painful as once thought—and indicates that AVs, whenever and wherever they show up, could contribute to the greening of the global car market.

ource: 2021 BMW iFlagship; Level 5 AV/EV )

In a paper published in the journal Nature Energy last month, researchers from Carnegie Mellon University project the potential behavior of self-driving cars in cities and suburbs. They find that certain aspects of autonomy do drain car batteries, but smart software and hardware tweaks should make fleets of battery-powered self-driving cars very possible.

Automakers differ on whether to power their first self-driving vehicles with electricity. The intra-industry divide is a reminder that autonomy is both an ambitious research project and a potential multi-trillion-dollar business, and that different players see different paths to market. Clearly, the ideal self-driving business model is far from settled.

Take Alphabet’s Waymo, which launched its self-driving ride-hail service in Phoenix with hybrid Chrysler Pacificas, but is shifting to all-electric Jaguar I-Paces. The company cited the vehicles’ faster charge time when it announced the switch. (The majority of vehicles running in Phoenix still have a person behind the wheel, to make sure the tech is operating as it should.)

Still others have been consistent. Tesla CEO Elon Musk has long pursued a fully autonomous electric car. Last week, he again asserted the company could achieve that goal this year. Most industry analysts are highly skeptical on the timing.

The Carnegie Mellon researchers say modest changes could make electric vehicles a better fit for self-driving. Constant starts and stops, and the computations to control them, tax battery range by 10 to 15 percent, they found. Programming vehicles to be smoother drivers would save some of that energy.

The researchers say there’s plenty of work to do around self-driving—and that it’s not all related to technology. “What we have not done is the social science aspect of it. How much would people be willing to pay for autonomy?” says Shashank Sripad, a PhD candidate in mechanical engineering at Carnegie Mellon who worked on the paper. It’s a question the business execs overseeing self-driving tech are no doubt interested in, too. Go deeper here LINK

Creed Comments: I have long held that electric, connected and autonomous vehicles (EV, CV, AV) are part of the continuum in mobility technology evolution. In this article, Wired writer Aarian Marshal, makes a compelling case that EV and AV technology may be closer to intersecting than many realize - and that merger may yield a carbon and climate benefit.


CORPORATE CITIZENS

(source: Deutsche Bank Wealth Management)

The rise of “S” in ESG investing

This is a critical time for corporate sustainability. What we do or don’t do will change the world, but for reasons nobody could have predicted in December.

The mass climate protests of 2019 and subsequent outpouring of major corporate climate commitments from the likes of Amazon, Starbucks and BP, among others, seemed to indicate that 2020 would be the year of the E in ESG — when corporate climate action hit critical mass.

In January, the momentum built as Microsoft committed to becoming carbon-negative and BlackRock Chairman Larry Fink’s now-fabled letter to CEOs called the climate crisis a "defining factor in companies’ long-term prospects." The climate crisis even topped the discussion list at the World Economic Forum Annual Summit in Davos.

And then along came a global pandemic, and everything changed. As the world went into lockdown, ESG conversations shifted from the E to the S, or social — how companies were responding to COVID-19 in terms of employee health and welfare. The emphasis on the S intensified even further after the murder of George Floyd sparked a movement for racial justice and employees, customers and investors demanded companies take a stand. 

As social issues move to the forefront of ESG discussions, 2020 is turning out to be the breakout year for the S. 

The S moves to the front seat

In the long road trip of corporate sustainability, the S mostly has ridden in the backseat — with the E and G commandeering the wheel and Spotify playlist. That’s because social issues are tough to quantify. 

While calculating a carbon footprint is comparatively straight forward, how does one create science-based targets for worker welfare or racial injustice? Sure, an organization can make efforts to diversify its board and workforce, or create programs to improve worker welfare, but this is only a start.

Addressing deeply rooted systemic inequalities requires a much greater commitment and means of measuring success. Until now, companies have gotten by with doing nothing or just the bare minimum. No longer, thanks to the events of 2020.

"We’re at a turning point in ESG," said Martin Whittaker, CEO of JUST Capital.
"What’s happened in the past three months has done 20 years of S work." 


Moving forward, corporate board members, investors and executives will be expected to consider worker welfare and complex social issues such as racial inequality. "Companies are scrambling to address these issues, and everyone needs to throw out the manual and completely rethink how they approach equity in the workplace, because something is not working," Whittaker said. 

But as the S takes over the wheel, are environmental issues, the E, getting pushed into the backseat? No, said Alison Humphrey, director of ESG at TPG. "It’s just joined climate in the front seat."

E and S: better together

The great thing about ESG is that it isn’t a zero-sum game. A renewed focus on the S actually might help companies do a better job of addressing environmental challenges, especially when the two are linked. People of color or low-income socioeconomic status, for example, are suffering and will continue to suffer first and worst from the negative effects of the climate crisis, says Union of Concerned Scientists

While measuring social impact remains difficult, this no longer will be an excuse for companies not to try. 

Even before the events of 2020, Workday factored social impact into its environmental sustainability strategy, said Erik Hansen, director of sustainability at Workday. "The events of the past months have illustrated how valuable systems thinking is, and showing that we are a connected, global community. That connection between climate, the environment, people and health."

One of the most effective ways to honor the E and the S might be focusing on the G, according to Anuj Shah, managing director at KKS Advisors: "One of the things we’ve looked at is how the G — the governance part — supersedes the E and the S. If you can get the G right, the E and S will follow." 

A hopeful future for ESG

Despite the setbacks of 2020, there remains reason for hope. The ongoing global pandemic is shattering the longstanding myth that companies must sacrifice return to be a good corporate citizen — ESG funds are outperforming the wider market during this economic downturn. 

And we are learning through much trial and error — emphasis on the "error" — how to address an intractable problem that harms everyone yet that no single government, organization or individual can solve alone. Relentless competition may be giving way to constructive collaboration. And these lessons might still be applied to address the ultimately more existential crisis of the climate. 

As we continue to push forward toward an uncertain future, the only certainty is that things will change. And it’s up to all of us to make sure that it’s for the better. Go deeper here LINK

Creed Comments: Many of us suspected that 2020 would be a banner year for ESG, but no one thought the “S” would lead. Now, many are asking, “what next?” I suggest leveraging the S to change the G - codify corporate commitments to recruiting diverse and inclusive executive leadership and boards of directors. That’s more meaningful than a statement of support and writing a check.


INSIGHTS

(source: 2019 Global Financial Centers Indices)

Should banks be required to price in climate change?

Since the 2008 financial crisis, regulators each year have required big banks to prove they could keep lending through new calamities. The rules, so far, have focused on purely economic disasters: Do they have enough capital to keep their doors open when markets collapse, or if unemployment explodes?

But there’s another kind of risk that didn’t burst onto the radar during that crisis but could trigger just as much of an economic disaster: climate change.

With increasingly severe storms, floods and fires, many forecasters envision a crisis that pivots from the physical to the economic. Imagine back-to-back wildfires and floods devastating huge swaths of California, or an epic drought coupled with tornadoes in Oklahoma during an oil price dip. The growing fear is that widespread damage to property serving as collateral for loans and to assets underpinning other investments could cause devastating financial blowback to banks, not to mention insurers on the hook for the damage.

What to do about the problem is emerging as a high-level conversation among global bankers, their regulators and an increasingly influential coalition of Wall Street watchdogs and environmental advocates who are winning over a growing number of U.S. lawmakers.

Should banks be subject to a stress test for climate—and if yes, what would it look like?

Stress tests are just one of the tools advocates want regulators to deploy to avert a disaster. But already the conversation is split between different approaches. One prevailing idea is to require more corporate disclosure of climate change risks. Others see the potential need for stricter regulatory intervention — such as an overhaul of bank capital rules — to nudge financial institutions toward a greener economy. 

The financial fallout from climate change falls into two potential buckets. The first category is the so-called physical risks, the danger that collateral such as real estate underlying bank loans is susceptible to natural disasters, exposing lenders to financial risks — in particular if they aren’t diversified.

The second category is less extreme and dramatic, but may have bigger long-term consequences. Those are the transition risks — the costs incurred as the world, as expected, reduces its carbon footprint to mitigate global warming. 

The concern is that it could trigger its own kind of shock — making financial institutions’ oil and gas investments worthless as carbon-producing energy sources become “stranded” and unburnable.

According to the Rainforest Action Network, 35 of the world’s biggest banks provided $735.6 billion in financing to fossil fuel companies in 2019. One calculation from February by Financial Times Lex Research Editor Alan Livsey put a $900 billion price tag on the value of fossil fuel assets that would be lost if governments tried to limit the increase in temperatures to 1.5 degrees Celsius above pre-industrial levels. Other estimates have put the degree of economic risk in the trillions of dollars.

Many economists have long suspected that climate risks are an underanalyzed, underappreciated threat to the world economy. In a study released in May, then International Monetary Fund found that global stock markets aren’t reflecting the physical dangers of natural disasters. IMF officials said that a first step should be more transparency: "granular, firm-specific information" on climate change exposure, wrote the IMF’s Felix Suntheim and Jérôme Vandenbussche, would help lenders, insurers and investors better understand the liabilities. The IMF said climate change stress testing and scenario analysis for financial firms “can play a potentially important role in providing a better sense of the size of the exposures at a highly granular level.”

The development and enforcement of the recommendations would fall to national regulators, including central banks. Some have already started to move in this direction.

Before Bank of England Governor Mark Carney stepped down in March, he pioneered an effort to begin stress testing banks for climate factors. The Bank of England, European Central Bank and Bank of Japan are among the more than 60 central banks and regulators that have formed the so-called Network for Greening the Financial System to collaborate on the issue. In June, the group released a set of climate scenarios as a starting point for analyzing the risks and a guide for regulators with practical advice on how they should proceed.

In the U.S., bank regulation falls to the Federal Reserve, Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and state agencies. Among them, the New York Department of Financial Services is the only U.S. representative in the Network for Greening the Financial System.

Underlying the proposals is a belief that the tools could also hasten the transition to a greener economy — a goal that supporters do not hide. That has banks distressed about whether they’ll become a tool for climate change policy. 

In the U.S., stress testing by the Fed has a direct impact on how banks must manage their balance sheets, and bank representatives argue the risks of climate change extend far beyond their current financial exposure. 

Tinkering with how much capital they have to hold based on what’s more environmentally friendly is even more horrific to lenders who say it’s as a way for governments to use bank deposits instead of taxpayer money to fund climate policy decisions. 

With U.S. regulators focused on the emergency response to the pandemic, nothing major is likely to happen in the near future. So, climate-related financial risk is shaping up to be another issue on the ballot in November — whether voters are tracking it or not. Go deeper here LINK

Carbon Creed: The banking sector holds the keys to rapid decarbonization at the national and global scale. This is a topic I would like to invite a finance expert to host an open thread discussion so that our readers can fully understand the implications of a climate stress test for banks. Please let me know if you would participate in that discussion.


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