Today’s Key Takeaways: ESG Investors Warming Up to Oil & Gas Sector. Europe set to ration gas. As metal demands rise, governments turn against deep sea mining. Biden’s climate promises at the “precipice of failure.”
NEWS OF THE DAY:
Biden holds off — for now — on climate emergency declaration
SEUNG MIN KIM, CHRIS MEGERIAN and MATTHEW DALY, Associated Press, July 19, 2022
President Joe Biden will travel to Massachusetts on Wednesday to promote new efforts to combat climate change, although he will not declare an emergency that would unlock federal resources to deal with the issue despite increasing pressure from climate activists and Democratic lawmakers.
The White House said Tuesday it has not ruled out issuing such a declaration later, which would allow the president to reroute funds to climate efforts without congressional approval. On Wednesday, Biden will announce other new climate actions when he visits a former coal-fired power plant in Somerset, Massachusetts, which shuttered in 2017 but has since been reborn as an offshore wind power facility.
But since Sen. Joe Manchin, D-W.Va., hit pause on negotiations over climate spending and taxes last week, the public attention has shifted to a presidential emergency declaration and what the Biden administration could do with the newfound powers.
“It’s not on the table for this week,” White House press secretary Karine Jean-Pierre said of a climate emergency declaration. “We are still considering it. I don’t have the upsides or the downsides of it.”
The president has been trying to signal to Democratic voters that he’s aggressively tackling global warming at a time when some of his supporters have despaired about the lack of progress. He has pledged to push forward on his own in the absence of congressional action.
Even ESG Funds Are Now Buying Big Oil Stocks
Tsvetana Paraskova, OilPrice.Com, July 19, 2022
- Some ESG funds have started to include traditional energy stocks in their portfolios.
- ESG-focused U.S. mutual funds saw in May the first net withdrawals from funds since December 2018.
- Especially in Europe, funds have an increased appetite for big oil companies.
After years of shunning and demonizing the oil and gas industry as the main culprit of rising global temperatures, some investors are now warming up to the sector as they realize that the international majors will have a role to play in the energy transition. Years of underinvestment in new supply, the energy crisis, and the Russian invasion of Ukraine have thrown into sharp relief energy security and affordability. As Europe scrambles to avoid gas and energy rationing in three months’ time, some investors have realized that oil and gas firms who invest in clean energy technologies shouldn’t be immediately cast aside as unfit for their righteous environmental, social, and governance (ESG) criteria and portfolios.
Recent analyses suggest that some ESG funds now include traditional energy stocks in their portfolios—an unimaginable thing just two years ago.
But over the past two years, the international oil and gas majors have vowed to become net-zero energy companies by 2050 and have boosted investment and participation in many offshore wind, solar, hydrogen, carbon capture, and EV charging projects.
Sure, environmental zealots continue to accuse Big Oil of greenwashing as usual.
Yet, it’s Big Oil, with its deep pockets, high credit ratings, and record cash flows this year, that could make the difference in an orderly energy transition, in which growth in clean energy sources doesn’t preclude supplying the oil and gas that the world needs now.
Energy Vastly Outperforms Market
Due to the high oil and gas prices in the aftermath of the Russian invasion of Ukraine and growing concerns about energy security, energy has been the top performing sector in the S&P 500 index year to date. Not only is energy the largest gainer, but it’s also been the only sector with gains so far this year, according to market data compiled by Yardeni Research. The energy sector in the S&P 500 had gained 26.5 percent year to date to July 18. In comparison, S&P 500 is down 19.6 percent, and all other sectors have also lost ground since January.
In the energy sector, the integrated oil and gas subsector has jumped by 34.4 percent year to date, and oil & gas refining and marketing has surged by 29.4 percent.
Meanwhile, ESG-focused U.S. mutual funds saw in May the first net withdrawals from funds since December 2018, per Morningstar research, due to deteriorating equity market conditions amid growing fears of recession.
“It just so happens that we had a really great five-year stretch for investors that focused on sustainability. But over the past six months, we’ve been in a period where that is not the case,” Paul Arnold, portfolio manager and co-head of asset allocation strategies at Morningstar Investment Management, told Morningstar, commenting on a difficult quarter for sustainable investing.
European ESG Funds Now Hold Oil Majors’ Stocks
In Europe, funds focused on ESG have slowly started to favor traditional energy stocks, fund managers tell the Financial Times.
Investors have seen that many majors are serious about investing in clean energy technology.
“Sentiment is definitely moving in favour of energy companies, even among investors that thought they would never want to be involved in the sector,” Mark Lacey, lead manager of Schroders’ ISF Global Energy and Energy Transition strategies, told FT.
A Bank of America analysis has recently shown that 6 percent of 1,200 European ESG active and passive funds are currently holding shares of supermajor Shell. At the end of 2021, this percentage was zero. Europe’s ESG-focused funds have also slightly raised their holdings in other European energy firms such as Repsol, Galp, Neste, and Aker BP, according to BofA data cited by FT.
“Energy has been the most underweight sector by ESG [environmental/social/governance] funds since last year, due to its [supposedly] ‘poor’ ESG profile,” BofA analysts said last month, as carried by TheStreet. U.S. supermajor Chevron, for example, is part of a BofA list of energy stocks with ‘buy’ ratings and high BofA ESG Meter scores but underweighted by ESG funds.
The ESG trend is here to stay—investors won’t stop demanding accountability and reduction in greenhouse gas emissions. But they could begin to accept that the energy transition will take decades and that the ‘Big Bad Oil’ is doing some things right in this transition. Such as supplying the current acute need for oil and gas amid soaring energy prices and growing concerns about energy security in places few have thought would resort to rationing energy. Germany, Europe’s biggest economy, could be one of those countries in three months.
The international oil and gas majors are also increasingly investing in cleaner energy solutions. Over the past month alone, Shell said it would start building Europe’s largest renewable hydrogen plant, while BP announced it would become the operator of one of the world’s largest renewables and green hydrogen energy hubs, based in Western Australia.
From the Washington Examiner, Daily on Energy:
EUROPE FED UP: Europe is moving beyond warning that Russia is going to cut off natural gas supplies to actively preparing for such an eventuality – even as President Vladimir Putin said he doesn’t intend to reduce the flow of gas.
Europe set to ration gas: The European Commission today called for member nations to curb their gas consumption by 15%, proposing mandatory cuts in the case of a gas emergency as a desperation measure to survive the winter.
Russia is still prevaricating: Russia has continued to hem and haw as to when it will resume gas deliveries via the key Nord Stream 1 pipeline, currently shut down for a planned 10-day maintenance period. (It had been slated to go back online tomorrow, but even that remains unclear, as Russian state-owned gas giant Gazprom awaits delivery of a turbine piece expected to be delivered July 24. Its installation is anticipated to take another 2-3 more days, putting it on track to resume deliveries closer to the end of the month.)
Putinsaid last night that Gazprom would fulfill its commitments, telling reporters that the state supplier “has always fulfilled and will fulfill all of its obligations.”
But in almost the same breath, Putin noted that yet another turbine on the line is due for maintenance on July 26, dangling the possibility of extending painful gas disruptions even longer, since the part in question—like the first—would also need to be sent back to Montreal for repair.
“There are two functioning machines there, they pump 60 million cubic meters per day … If one is not returned, there will be one, which is 30 million cubic meters. Has Gazprom something to do with that?” Putin said, according to Russian media outlets.
EU leaders noted this week that in June, overall Russian gas flows to Europe were less than 30% of the average supply the bloc received during the last five years.
In a speech this morning, European Commission President Ursula von der Leyen stressed the necessity of the EU’s emissions reduction effort, telling leaders: “I think we should be very clear[:] Gazprom has proven to be a completely unreliable supplier.”
“And behind Gazprom is, as we know, Putin,” she said. “So it is not predictable what is going to happen.”
Governments Turn Against Deep-Sea Mining as EV Boom Drives Demand for Metals
Todd Woody, Bloomberg, July 18, 2022
A UN-affiliated organization meets this week to negotiate regulations that could allow seabed mining to begin as soon as 2024, despite warnings from scientists about a potential environmental catastrophe.
As battery makers scramble to procure cobalt, nickel and other metals to meet rising consumer demand for electric cars, governmental opposition to strip-mining the seabed for minerals is mounting.
The deep ocean contains the largest estimated deposits of minerals on the planet, potentially worth trillions of dollars. But in recent weeks, Chile, Fiji, Palau and other nations have called for a moratorium on ocean mining until there is a better understanding of the environmental consequences of destroying little-explored and unique deep-sea ecosystems that play an undetermined role in the global climate. French President Emmanuel Macron, meanwhile, expressed his opposition to seabed mining in June at the United Nations Ocean Conference in Lisbon, Portugal.
Biden’s climate plan in free fall
Scott Waldman, Climatewire, July 19, 2022
The president faces the grim reality that his historic climate promises are at the precipice of failure after a clean energy bill collapsed and the Supreme Court threw carbon regulations into a storm of uncertainty.
President Joe Biden’s miserable climate summer is getting worse.
His authority to regulate carbon emissions was hobbled by the Supreme Court last month as a three-year drought devastates parts of the West, with dangerous wildfires, hurricanes and floods looming as threats to large portions of the United States.
Then, late last week, Sen. Joe Manchin (D-W.Va.) stripped Biden of one of the last potential victories remaining: passage of major climate legislation.
Already, few political pundits foresaw Democrats keeping control of Congress, and their hopes of salvaging enough electoral wins to retain the Senate might be more remote without a legislative victory on climate change in the months before midterm elections.
“We’ve got to pass a bill,” Sen. Brian Schatz (D-Hawaii), who is up for reelection in November, said last week. “I never respond to the question ‘Are you concerned?’ But, yes.”
The Supreme Court decision in West Virginia v. EPA last month restricted the Biden administration’s ability to regulate power plant emissions, essentially designating climate action to Congress. On Thursday, Manchin made it clear that no significant climate policy will pass this Congress, which is split 50-50 and needs the support of every Democrat on climate legislation.
The political standoff occurs as a wave of climate-fueled disasters are underway. Intense flooding in southwest Virginia carried away homes and forced dozens of people to flee for their lives last week. New Mexico is battling the biggest wildfires in state history. And yawning expanses of the West are feeling the damaging effects of a yearslong megadrought.
If recent history is a guide, Biden could soon be doing another tour of flooded communities, burned mountainsides and storm-struck coastlines to talk about the cost of doing nothing to mitigate greenhouse gas emissions. When he did that last year, he had a solution: his $1.8 trillion “Build Back Better” plan.
That died in December when Manchin announced his opposition to it during a live broadcast on Fox News. The far more modest effort that arose in its place, but that still included about $300 billion in climate-related spending, collapsed on Thursday, when Manchin withdrew his support.
Manchin said Friday that he could still support some form of climate policy if negotiations with Democrats continue this summer.
“I want to help our country; we need an energy policy that helps our country,” Manchin said Friday on the “Talkline with Hoppy Kercheval” radio show in West Virginia. “I’m not stopping.”
His comments came days after a massive flash flood swept through a rural county in the neighboring state of Virginia, a postlude to the destruction of recent summers. The flooding occurred in Buchanan County, an Appalachian region particularly vulnerable to the more extreme rainstorms that scientists say are becoming more frequent.
Polls show that the majority of young voters strongly disapprove of Biden, and that Democrats don’t think he is doing enough on climate.
Climate policy was a top issue for Democratic voters in the 2020 election season. Biden pledged on the campaign trail to spend $2 trillion on a plan to rapidly increase clean energy and electric vehicles and cut greenhouse gas emissions in half by the end of the decade.
That level of spending has not materialized. A Rhodium Group analysis released Thursday shows that the United States is on track to cut emissions 24 to 35 percent below 2005 levels by 2030, which falls “significantly short” of its commitment under the Paris Agreement.
Sen. Sheldon Whitehouse (D-R.I.) said last week that Democratic voters will want something on climate that’s “a lot better than what we’ve been able to show them.”
Whitehouse said the Biden administration needs to have an aggressive climate plan outside of the reconciliation bill that’s now in tatters, including on the “social cost of carbon, carbon tariff adjustment, regulation of carbon emissions from major sources, just for starters.”
Biden said Friday that he would use executive action to address rising temperatures.
“If the Senate will not move to tackle the climate crisis and strengthen our domestic clean energy industry, I will take strong executive action to meet this moment,” Biden said in a statement. “My actions will create jobs, improve our energy security, bolster domestic manufacturing and supply chains, protect us from oil and gas price hikes in the future, and address climate change.”
One small consolation for Biden: Voters have a lot of other issues to be concerned about right now.
The failure to achieve a major climate victory might not repel midterm voters, said Kyle Kondik from the University of Virginia Center for Politics.
“There is not a ton of evidence, historically, that voters reward parties for action in midterms,” Kondik wrote in an email response to questions. “Usually, the presidential party ends up struggling for one reason or another. So I don’t think that, even if Democrats pass something on climate through reconciliation, it would make much of an electoral difference.”
To be clear, the White House has already achieved significant climate victories, including a major expansion of offshore wind leasing, more stringent vehicle emissions standards and a $1 trillion bipartisan infrastructure bill that boosts electric-vehicle charging stations and builds out electric bus fleets. Biden has also used the Defense Production Act to expand domestic solar manufacturing as well as mining and processing of critical minerals used in batteries for electric vehicles and clean energy storage.
A White House official denied that Biden would be unable to achieve his climate goals.
“We continue to have multiple viable pathways to achieve President Biden’s 2030 climate targets and beyond,” the official said on condition of anonymity. “President Biden has and will continue to take action — administrative and legislative — that will accelerate the momentum behind cheaper sources of clean energy.”
And yet Democratic voters want more from the administration.
About 8 in 10 Democrats say Biden is moving the country in the right direction on climate change, according to a Pew Research Center survey released Thursday.
But the poll also showed deep dissatisfaction among Democrats with Biden’s climate policy thus far. A large majority, or 61 percent, said the administration could be doing a lot more on climate, Pew found.
That comes as one of the voting blocs most motivated by climate action sees little value in his reelection.
Biden has a 19 percent approval rating among voters under 30, according to a Siena College/New York Times poll released last week. Sixty-nine percent of those voters disapprove of the job he is doing as president.
Young voters, in both parties, are more likely to be climate voters, said Anthony Leiserowitz, director of the Yale Program on Climate Change Communication. And while they’re clearly angry at Biden and congressional Democrats for not doing enough on climate, their vote in November is likely to be shaped by a host of other issues, including school massacres and the Supreme Court’s expansion of gun rights and its decision revoking the constitutional right to abortion.
“In young people, there’s a lot of nose-holding likely to be happening when people vote this fall,” Leiserowitz said. “In the realm of pulling the lever for one candidate or another, people don’t always vote for somebody as much as they vote against the other person.”
American summers are increasingly deadly because of climate-related factors. Last year, in his first summer as president, Biden traveled to New Jersey to survey flooding damage, to Louisiana to see the ravages of Hurricane Ida and to California to witness the aftermath of the second-largest wildfire in state history.
They were just some of the 18 weather-related disasters that hit the United States last year, causing more than $100 billion in damages.
In September, Biden traveled to the National Interagency Fire Center in Idaho and said that the United States has a “serious global warming problem.” As with other visits to disaster areas, he pointed to his “Build Back Better” plan as an essential part of his agenda.
If Biden makes similar appearances this summer, he likely won’t have that bold climate promise to offer. He took office with the most ambitious climate platform in presidential history, but the polling shows that Democrats think he has underdelivered on that pledge.
There is already an acknowledgment among some Democrats that other pathways are needed outside of a big climate spending bill to reduce greenhouse gas emissions.
Last week, a group of House Democrats held up the defense spending bill as an example of one way to cut emissions and build out clean energy.
That includes shifting the military — the country’s leading consumer of fossil fuels — toward clean energy and electrical vehicles as well as hardening military bases to the effects of climate change, said Rep. Andy Kim (D-N.J.)
“We’ll find steps to be able to push back against what the Supreme Court did, but also recognize that there’s no single law that any of us can write that’s going to solve this problem once and for all,” he said.