Jul 21, 2020

Axios Generate

Good morning. Today's Smart Brevity count: 1,251 words, < 5 minutes.

🚨 Situational awareness: "European Union leaders clinched a deal on Tuesday for a huge stimulus package which the European Commission has said will make fighting climate change central to Europe’s economic recovery from the coronavirus pandemic." (Reuters)

🎵 And at this moment in 1992, Arrested Development had just ended a week atop Billboard's hip-hop charts with today's intro tune...

1 big thing: Apple's carbon neutral pledge

Illustration: Aïda Amer/Axios

Apple announced this morning that it aims to ensure every product it sells will have a net-zero impact on climate change within 10 years, Axios' Amy Harder reports.

The big picture: It's the latest move by tech giants looking to go big on climate, even while they face growing scrutiny over the main thrust of their businesses, namely antitrust concerns.

Where it stands: Apple has previously announced other climate goals, like powering all its facilities with 100% renewable energy, but this one is notable for its exhaustive nature covering supply chains plus the relatively quick 10-year timeline.

Why it matters: Apple's biggest carbon footprint comes from the computers, phones and other devices made in manufacturing plants around the world that it doesn’t directly control, so this plan will shed light on how to slash carbon emissions from complex supply chains.

What they’re saying: The coronavirus may delay the rollout of the next iPhone, but it won't slow down Apple’s climate goals, Lisa Jackson, Apple’s chief sustainability officer, tells Axios.

How it works: By working with its suppliers around the world and using ever-more recycled material for its products, Apple says it can cut 75% of its emissions within 10 years.

  • The remaining 25% it hopes to reduce via a new “carbon solutions fund,” which will invest money (an amount Apple isn’t disclosing) in natural ways —i.e., planting and then cutting down trees in a sustainable manner — to offset the remaining quarter of emissions.
  • Company officials say this isn’t the same as engaging in official "carbon offset" programs, wherein people purchase credits to cancel out carbon footprints by ostensibly preventing emissions elsewhere (by, for instance, planting trees).
  • Among other specific developments, it's announcing a new robot the company is calling Dave (to go along with current robot Daisy) that can recover rare earth material from recycled iPhones.

Between the lines: Tech companies' climate plans are often a mix of empty rhetoric and concrete action.

  • Microsoft announced earlier this year it would be carbon neutral by 2030 and cancel out all its emissions since its 1975 founding.
  • Amazon, which has faced the most criticism for its climate policies from its own employees, said last September it will be carbon neutral by 2040.

Reality check: What tech companies do on climate change does raise awareness of the topic, considering how consumer-facing these firms are.

  • But the corporate climate goals that arguably matter most are the producers of oil, natural gas and coal, given they are the biggest reasons for climate change.

Read more

2. Chevron's deal might not be a trendsetter

Chevron's deal to snap up Noble Energy could usher in more oil-patch mergers, but it's hardly a sure bet.

Driving the news: The all-stock deal announced Monday is the first big takeover during the pandemic-fueled oil bust.

  • But Chevron was on the hunt even before the crisis, and analysts are uncertain how many more deals are in the offing.

What they're saying: "This could certainly ignite a wave of additional consolidation, although that is by no means certain," Enverus analyst Andrew Dittmar said in a note.

  • He points out that M&As were already slow heading into the pandemic, but that the crisis has also created openings — if the stars align.
  • “This deal lays out the blueprint for what post-COVID consolidation will likely need to look like with all-stock consideration, a moderate premium, and asset fit and synergies that are an easy and natural story to tell investors," he said.

The intrigue: Raymond James analyst Pavel Molchanov tells me that "in the middle of a painful commodity down cycle, even the most liquid, stable companies are not automatically on the lookout for large-scale acquisitions."

  • "We need to be mindful of pressures on balance sheets from low commodity prices as well as dividends. No management team would want to jeopardize its balance sheet due to an ill-timed purchase," Molchanov said.

Yes, but: “In a downturn like this, the strong get stronger and the weaker players try to survive as best they can, and some will be bought," Duane Dickson, a top Deloitte energy analyst, tells the New York Times.

  • “There will be some bankruptcies and mergers and acquisitions like you saw today and I would expect that will continue and potentially pick up speed."
3. Gas flaring persists in worrying climate sign
Reproduced from The World Bank; Chart: Axios Visuals

The burning of natural gas at oil production sites rose to its highest level last year since 2009, per newly released World Bank estimates based on satellite data.

Why it matters: Flaring the gas associated with oil production, rather than capturing it, emits lots of greenhouse gas emissions, even though the oil sector has made progress on a per-barrel basis.

  • Check out the chart above, which shows flaring from oil-and-gas production sites and gas liquefaction plants.

The big picture: Flaring rose 3.5% from 2018 to 2019 to reach 150 billion cubic meters, per the World Bank-led Global Gas Flaring Reduction Partnership, which hopes to end "routine" flaring by 2030.

  • For a sense of scale, 150 bcm is equivalent to the total annual gas consumption of sub-Saharan Africa, the report notes.
  • The increase was largely driven by three countries: U.S., Venezuela and Russia.

Threat level: "Gas flaring in fragile or conflict-affected countries increased from 2018 to 2019: in Syria by 35% and in Venezuela by 16%, although oil production was flat in Syria and declined by 40% in Venezuela," the report finds.

What's next: There were reasons to think that 2020 would see a reversal of 2019's rise even before the pandemic crisis really took hold.

  • The analysis notes that satellite data shows decreases in many countries — including the U.S. — in the first quarter.

The bottom line: "While 2020 is likely to see a decline in global gas flaring, the data suggests that gas flaring continues to be a persistent problem, with solutions remaining difficult or uneconomic in certain countries," the report states.

Editor's note: This story has been corrected with respect to the estimated amount of increased gas flaring from 2018 to 2019.

4. BlackRock warns of risk from water scarcity

New Mexico is part of the U.S. where water stress is expected to intensify. Photo: Michael Robinson Chavez/Los Angeles Times via Getty Images

Roughly 60% of real estate investment trust (REIT) properties are projected to experience high water stress by 2030 — more than double the number today, per new analysis from asset management giant BlackRock that Axios' Bryan Walsh obtained ahead of wide release.

Why it matters: Climate change is set to exacerbate water scarcity in much of the world. Investors who fail to price in the cost of adapting to water stress risk being left high and dry.

Details: Water stress occurs when need for water exceeds supply, due to a combination of population growth and urbanization — which increases demand — and the effects of climate change, which can alter the distribution of water supplies.

  • BlackRock used the distribution of REITs to identify where investors will feel the pain of water stress.

By the numbers: Almost all REIT properties in Malaysia, Japan, and Australia, among other countries, will likely be in what are classified as high-risk water zones within 10 years, according to the report.

  • Roughly two-thirds of U.S. REIT properties are projected to be in high-risk water zones, double the proportion today. This includes most of the country west of the Mississippi.

Read more

The big picture: The report comes as BlackRock is increasingly urging fossil fuel companies to get more aggressive on climate, part of a wider sustainability strategy unveiled this year.

5. Catch up fast: Oil rise, Wall Street, Halliburton

Markets: "Oil climbed to the highest level since early March in London as hopes for an economic recovery from the coronavirus crisis lifted financial markets." (Bloomberg)

Emissions: "Morgan Stanley will become the first major U.S. bank to publicly disclose the how much its loans and investments contribute to climate change, the latest sign that Wall Street giants are beginning to reckon with their role in heating the planet." (Politico)

Earnings: "Oilfield services giant Halliburton Co posted its third straight quarterly loss on Monday as it took a $2.1 billion impairment charge amid a slump in oil prices and collapse in drilling by North American customers." (Reuters)