Jun 2, 2020

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Welcome back. Today's Smart Brevity count: 1,039 words, 4 minutes.

Situational awareness: My Axios colleagues are doing vital journalism on the police killing of George Floyd, the protest and response, COVID-19 and more. Follow the Axios stream for the latest.

  • And the Washington Post has an interesting look at the environmental movement: "Green groups are expressing full-throated support for demonstrators protesting the killing of George Floyd ... even as they struggle with their own long-standing issues with addressing racial inequality and a lack of diversity in their ranks."

🎵 And at this moment in 1983, Talking Heads had just released "Speaking in Tongues," which provides today's intro tune...

1 big thing: The alarm over climate financial risk gets louder

Illustration: Sarah Grillo/Axios

The COVID-19 pandemic underscores why market regulators, companies and investors should do a better job planning for climate risks to the financial system, a pair of new reports find.

Driving the news: The International Monetary Fund said projected increases in the frequency and severity of natural disasters are a potential threat that investors probably aren't weighing enough.

  • Separately, the investor advocacy group Ceres has a new report that recommends steps that the Federal Reserve, banking, commodity and securities regulators should take to address "systemic risk" of global warming.

Why it matters: "While projections of climatic variables and their economic impact are subject to a high degree of uncertainty, aggregate equity valuations as of 2019 do not appear to reflect the predicted changes in physical risk under various climate change scenarios," IMF said in the latest analysis published in its wider "Global Financial Stability Report."

  • Meanwhile, the Ceres report could help provide a roadmap for regulators under a Joe Biden presidency, which would shift the partisan balance in independent regulatory agencies.

The intrigue: The IMF authors, in a blog post, say the COVID-19 crisis is a reminder that "crisis preparedness and resilience are essential to manage risks from highly uncertain events that can have extreme economic and human costs."

  • The Ceres report similarly cites COVID-19 in its warning of the potential for "unaddressed risks to massively disrupt both Wall Street and Main Street."
  • It also warns that "mispricing" climate risks adds further jeopardy to financial systems already vulnerable from the pandemic.

What they found: The IMF analysis finds that with some big exceptions — such as catastrophic 2011 flooding in Thailand that sent markets there reeling — large disasters have historically had a pretty minor effect on equity markets.

  • But they see trouble signs going forward, given estimates of more heatwaves, precipitation and more.
  • They compared very recent (2019) equity valuations in both advanced economies and emerging markets to growing climate-related risks.

The bottom line: "Looking retrospectively to 2019 equity valuations across countries, our study finds that they did not reflect any of the commonly discussed global warming scenarios and associated projected changes in hazard occurrence or incidence of physical risk," the summary notes.

  • "This apparent lack of attention could be a significant source of market risk looking forward."

What's next: The IMF report's recommendations include mandatory corporate disclosures on climate risks that would help banks, insurers and investors better grasp them.

2. The global EV divergence
Reproduced from U.S. Office of Energy Efficiency & Renewable Energy; Chart: Axios Visuals

Germany is reportedly planning to boost incentives for electric vehicle purchases as part of a forthcoming pandemic stimulus, a week after French officials prioritized EV subsidies in their auto sector aid plan.

Driving the news: The incentives for EVs and fuel-efficient cars are part of the effort to help the country's large auto sector, Reuters and Bloomberg report.

  • "Existing incentive programmes would be increased by 1,500 euros for electric cars and 750 euros for hybrids," Reuters notes.

Why it matters: It signals how response plans to the pandemic, which is battering car sales, could widen the EV growth divide in the world's largest auto markets.

  • China, which already offers substantial support for its domestic sector, is also promoting EVs in its stimulus measures.
  • It's a contrast to the U.S., where stimulus measures to date have not included new EV incentives.

The big picture: The research firm BloombergNEF, which sees a drop in global EV sales this year, projected a global divergence as the sector recovers in the years ahead in their long-term outlook last month.

  • As we reported here, they see China and Europe pulling further ahead. "The U.S. falls further behind leading EV markets over the next few years, but catches up in the 2030s."
3. Direct air capture player snags $75 million

Climeworks, the Swiss company looking to scale-up technology that sucks CO2 out of the atmosphere, said Tuesday that it has raised $75 million from private investors.

The big picture: The company called it the largest private investment to date in direct air capture.

  • Climeworks has raised a total of roughly $124 million since its founding in 2009. It's one of several companies looking to scale up and cut costs for CO2 removal.
  • Bloomberg first reported the new financing. "Climeworks builds machines that catch carbon dioxide from the air and store it in solid state underground. It also takes the CO2 and delivers it to industrial clients, such as The Coca-Cola Co., who can then use it to put bubbles in drinks."

Why it matters: There's growing interest in various negative emissions technologies and ways to cut what are now steep per-ton removal costs.

  • That's partly in recognition that emissions trends and the expansion of zero carbon energy are nowhere near on pace to meet the goals of the Paris climate deal.

Where it stands: The new financing comes as corporate climate pledges are also driving new interest in negative emissions.

  • Climeworks is among the companies that Stripe, a payment tech company, is paying for its initial CO2 removal efforts.
  • Microsoft in January announced a pledge to be "carbon negative" by 2030 that includes funding for emerging carbon removal tech.
4. Renewables group declares cost "turning point"

New solar and wind energy projects are "undercutting the cheapest and least sustainable of existing coal-fired plants" worldwide, the International Renewable Energy Agency (IRENA) said in a report Tuesday.

Driving the news: The group finds that in 2021, roughly 1,200 gigawatts of coal-fired generation may have higher operating costs than the average price of new utility-scale solar.

  • It also finds that onshore wind has slightly higher costs but still undercuts about 850 gigawatts of coal by 2021.
  • That finding is part of a wider look at falling costs for a suite of renewables technologies and how they stack up to fossil generation.

By the numbers: Retiring the least competitive 500 gigawatts of coal plants and replacing them with solar and onshore wind would save $12 billion to $23 billion annually in power system costs, they conclude.

  • That would cut CO2 emissions by 1.8 gigatonnes, which is 5% of last year's global total, per IRENA, the roughly decade-old intergovernmental group that advises nations on renewables policy.

What they're saying: “We have reached an important turning point in the energy transition. The case for new and much of the existing coal power generation, is both environmentally and economically unjustifiable," Francesco La Camera, IRENA's director-general, said in a statement.

Read the report

5. Catch up fast on EPA regulations

Permitting: "The Environmental Protection Agency on Monday announced that it had limited states’ ability to block the construction of energy infrastructure projects, part of the Trump administration’s goal of promoting gas pipelines, coal terminals and other fossil fuel development." (New York Times)

Methane: "President Donald Trump's administration says it could rescind requirements for oil and gas companies to reduce their emissions of methane, a potent greenhouse gas, by the end of next month." (Argus Media)

Ben GemanAmy Harder