Large Companies Prepared to Pay Price on Carbon



By Coral Davenport, The New York Times:

WASHINGTON — More than two dozen of the nation’s biggest corporations, including the five major oil companies, are planning their future growth on the expectation that the government will force them to pay a price for carbon pollution as a way to control global warming.

The development is a striking departure from conservative orthodoxy and a reflection of growing divisions between the Republican Party and its business supporters.

A new report by the environmental data company CDP has found that at least 29 companies, some with close ties to Republicans, including ExxonMobil, Walmart and American Electric Power, are incorporating a price on carbon into their long-term financial plans.

Both supporters and opponents of action to fight global warming say the development is significant because businesses that chart a financial course to make money in a carbon-constrained future could be more inclined to support policies that address climate change.

But unlike the five big oil companies — ExxonMobil, ConocoPhillips, Chevron, BP and Shell, all major contributors to the Republican party — Koch Industries, a conglomerate that has played a major role in pushing Republicans away from action on climate change, is ramping up an already-aggressive campaign against climate policy — specifically against any tax or price on carbon. Owned by the billionaire brothers Charles and David Koch, the company includes oil refiners and the paper-goods company Georgia-Pacific.

The divide, between conservative groups that are fighting against government regulation and oil companies that are planning for it as a practical business decision, echoes a deeper rift in the party, as business-friendly establishment Republicans clash with the Tea Party.

Tom Carnac, North American president of CDP, said that the five big oil companies seemed to have determined that a carbon price was an inevitable part of their financial future.

“It’s climate change as a line item,” Mr. Carnac said. “They’re looking at it from a rational perspective, making a profit. It drives internal decision-making.”

Companies do not know what form a future carbon price would take. Congress could one day vote to directly tax emissions. President Obama is moving forward with plans to regulate carbon pollution from coal plants, with or without action from Congress — and states could carry out those regulations by taxing carbon polluters. At climate change talks at the United Nations, State Department negotiators have pledged that the United States will cut its carbon emissions 17 percent below 2005 levels by 2020, and 80 percent by 2050.

Mr. Carnac said: “Companies see that the trend is inevitable. What you see here is a hardening of that understanding.”

Other companies that are incorporating a carbon price into their strategic planning include Microsoft, General Electric, Walt Disney, ConAgra Foods, Wells Fargo, DuPont, Duke Energy, Google and Delta Air Lines.

During the 2012 election, every Republican presidential candidate but one, Jon Huntsman, questioned or denied the science of climate change and rejected policies to deal with global warming. Opponents of carbon-pricing policies consider them an energy tax that will hurt business and consumers.

Mainstream economists have long agreed that putting a price on carbon pollution is the most effective way to fight global warming. The idea is fairly simple: if industry must pay to spew the carbon pollution that scientists say is the chief cause of global warming, the costs will be passed on to consumers in higher prices for gasoline and electricity. Those high prices are expected to drive the market away from fossil fuels like oil and coal, and toward low-carbon renewable sources of energy.

Past efforts to enact a carbon price in Washington have failed largely because powerful fossil-fuel groups financed campaigns against lawmakers who supported a carbon tax.

In 1994, dozens of Democratic lawmakers lost their jobs after Al Gore, who was vice president at the time, urged them to vote for a climate change bill that would have effectively taxed carbon pollution. In 2009, President Obama urged House Democrats to vote for a cap-and-trade bill that would have required companies whose carbon-dioxide emissions exceeded set levels to buy emissions rights from those who emitted less. The next year, Tea Party groups spent millions to successfully unseat members who voted for the bill.

But ExxonMobil, which last year was ranked by the Fortune 500 as the nation’s most profitable company, is representative of Big Oil’s slow evolution on climate change policy. A decade ago, the company was known for contributing to research organizations that questioned the science of climate change. In 2010, ExxonMobil purchased a company that produces natural gas, which creates less carbon pollution than oil or coal.

ExxonMobil is now the nation’s biggest natural gas producer, meaning that it will stand to profit in a future in which a price is placed on carbon emissions. Coal, which produces twice the carbon pollution of natural gas, would be a loser. Today, ExxonMobil openly acknowledges that carbon pollution from fossil fuels contributes to climate change.

“Ultimately, we think the government will take action through a myriad of policies that will raise the prices and reduce demand” of carbon-polluting fossil fuels, said Alan Jeffers, an ExxonMobil spokesman.

Internally, ExxonMobil now plans its financial future with the expectation that eventually carbon pollution will be priced at about $60 a ton, which Mr. Jeffers acknowledged was at odds with some of the company’s Republican friends.

“We’re going to say and do what’s in the best interest of our shareholders,” he said. “We won’t always be on the same page.”

It remains unlikely that any climate policy will move in today’s deadlocked Congress, but if Congress does take up climate change legislation in the future, Mr. Jeffers said ExxonMobil would support a carbon tax if it was paired with an equal cut elsewhere in the tax code — the same policy that Mr. Gore has endorsed. “ExxonMobil and many other large companies understand that climate change poses a direct economic threat to their businesses,” said Dan Weiss, director for climate policy at the Center for American Progress, a liberal research group with close ties to the Obama administration. “They need to convince their political allies to act before it’s too late.”

Koch Industries maintains ties to the Tea Party group Americans for Prosperity, which last year campaigned against Republicans who acknowledged the science of climate change. The company also contributes money to the American Energy Alliance, a Washington-based advocacy group that campaigns against lawmakers that it claims support a carbon price. This year, the American Energy Alliance says it has spent about $1.2 million in ads and campaign activities attacking candidates who it says support a carbon price.

Robert Murphy, senior economist at the American Energy Alliance, said his group was not concerned that it had taken a different position from the major oil companies. “We’re not taking marching orders from Big Oil,” he said.

In fact, Koch has a longtime resentment of the biggest oil companies.

According to company history, Koch’s founder, Fred Koch, the father of Charles and David, invented a chemical process to more efficiently refine oil but was blocked from bringing it to the market by John D. Rockefeller, the owner of Standard Oil — the company that was later broken up to make some of the major oil companies of today, including ExxonMobil.

People at Koch say sore feelings remain to this day.

 The above article can also be read on the original website here.

America Is Winning a Race That It Never Signed Up For

By Tom Randall, Bloomberg:

When it comes to reaching international deals on climate change, the U.S. hasn’t had much success. No one has. That’s too bad, because when it comes to cutting greenhouse-gas emissions, America ranks among the best in the world.


The chart above shows the carbon intensity of the U.S. economy since 1949. The blue line shows metric tons of carbon dioxide produced per million dollars of economic output.

Last year the U.S.’s carbon intensity dropped by 6.5 percent, by far the biggest decline since record keeping began in 1949, according to the U.S. Energy Information Administration. Energy-related CO2 emissions tumbled to the lowest level since 1994; over the same period, real GDP climbed 56 percent, showing that greenhouse-gas cuts don’t preclude economic growth.

Most recently, America’s carbon-cutting success has been fueled by a boom in cheap natural gas, which is driving out carbon-intensive coal. Increasing fuel efficiency in the nation’s auto fleet is also playing a role. The U.S. State Department reported in September that America is on track to reduce total emissions by 17 percent by 2020 from a 2005 benchmark, making good on a pledge made four years ago at UN climate talks in Copenhagen.

Those climate talks are set to resume Nov. 11 in Warsaw. In some ways, America’s decreasing rate of greenhouse-gas pollution reduces the impetus to impose new policy restrictions aimed at accomplishing the same goal. At the same time, wouldn’t it be nice if the U.S. leveraged its success to get other countries to do the same?

November 4, 2013

This article can also be viewed on Bloomberg’s website here.

Mayors Argue to Cut Fossil Fuel Stock

By John Ryan,

Seattle Mayor Mike McGinn wants his city to divest from fossil energy companies.

Investment advisors from across the country met on Friday in Seattle in hopes of cutting fossil fuels from the stock portfolios they manage.

Seattle Mayor Mike McGinn organized the forum on divesting from coal, oil and gas companies. McGinn wants the city employees’ pension fund to divest because of fossil fuels’ impact on the global climate.

“Isn’t it fiscally irresponsible as well as morally irresponsible to invest in companies whose very business model depends upon destroying the climate we depend upon?” McGinn said.

McGinn doesn’t have control over Seattle’s more than $2 billion in pension funds. That’s controlled by a seven-member board.

No pension board members attended Friday’s forum.

The mayor has tried to exercise the control he does have, however. McGinn ordered the city’s finance director in December not to invest any of the city’s cash balances in coal, oil or gas companies. He also urged the board that administers the Seattle City Employees’ Retirement System to sell off its fossil-fuel investments.

That board voted last month to consider changing its investments for social or environmental goals only if doing so wouldn’t hurt the pension fund’s bottom line.

At Friday’s divestment forum, financial experts said that divesting from fossil fuels need not hurt the bottom line.

“There’s a lot of evidence out there showing that it won’t hurt,” said Craig Metrick, an investment consultant with the multinational firm Mercer. “It’s as much about what you do with the money once you divest, if you’re going to divest, as to whether or not you divest alone.”

Metrick said replacing fossil fuel stocks could even be financially beneficial, especially if burning of fossil fuels is restricted to protect the climate.

“If you’re replacing fossil fuel stocks, performance may be better over certain time periods,” he said.

McGinn said not divesting would leave the city’s pension holders more exposed to the risk of their retirement savings losing value. “They should be concerned if their financial returns depend on doing something that may be regulated out of existence,” he said.

How much of Seattle’s pension funds are invested in fossil fuel companies is unclear, as the investments are typically in mutual funds containing a variety of assets. McGinn said in December that the city employees’ pension funds included at least $17 million in ExxonMobil and Chevron stock.

McGinn’s opponent in the upcoming mayoral election also supports divesting from fossil fuels. Rep. Ed Murray’s campaign said Murray supports divesting only if it doesn’t put the city’s pension system at risk.

At least one investor at the forum questioned the utility of divesting in a long list of energy companies, as the environmental group is calling on cities and colleges to do.

“Divestment itself won’t reduce emissions,” said money manager Jonathan Naimon with Light Green Advisors in Seattle. “If you sell the stocks, but you still buy the fuel to fuel your cars, you’re not really moving the real economy forward.”

Naimon said he favors greening portfolios by shedding the very worst firms but investing in those that have improving records.

“You’ll actually have a larger impact on climate if you engage with these companies and get them not to do bad projects like the tar sands (heavy oil drilling in Alberta),” Naimon said.

Mayors of 12 cities have pledged to divest their cities’ funds from fossil fuels. McGinn was the first.

October 22, 2013

This article can also be viewed on the website here.




Potential in the Pipeline – FA


By Jerilyn Klein Bier, Financial Advisor (FA Online):

Biofuels buzz has gotten louder in recent months.

The U.S. Departments of Agriculture, Energy and Defense (through the Navy) announced a three-year $510 million joint investment to support the development of drop-in biofuels for aviation and marine applications. The USDA pledged $136 million to support development of advanced biofuels made from non-food crops. Many idled biodiesel plants are humming again with the return of a federal tax credit, and several European airlines have fueled commercial flights with biodiesel.

A number of biofuel-related IPOs have also been launched over the past 20 months including Solazyme, KiOR, Gevo, Amyris and Codexis. A handful of others are in the IPO queue, says Jim Lane, editor and publisher of Biofuels Digest, a Web site and daily online newsletter.

“The fields to wheels universe is big,” says Lane, who estimates that in addition to large and small public players, some 1,200 private companies are also doing some sort of bio-energy work.

But do biofuels carry hope or just hype for a cleaner, greener environment? How far out are we from seeing them used on a large-scale basis? And what opportunities are available for investors in this volatile sector? (Solazyme, Gevo and Amyris were trading approximately 55% to 72% below their 52-week highs as of early November.) 

First-generation biofuels, such as ethanol made from corn and sugarcane and biodiesel from palm oil, have had their share of skeptics. “The real problem is with the food-versus-fuel question. How do we feed 9 billion people by 2050?” asks Ellen Kennedy, a senior sustainability analyst with Calvert Investments. 

It’s not just the socially responsible investing community that’s upset with the upward pressure corn-based ethanol production has exerted on corn prices, demand for cropland, the cost of animal feed, and, ultimately, the prices of other farm commodities. Roughly 40% of this year’s U.S. corn crop will be used to make ethanol and its byproducts, estimates the USDA.

Food concerns also extend to palm oil, which Kennedy notes is a staple in the Asian diet and is being used as a substitute for trans fats. She’s concerned, too, about the life cycle effects related to biofuels. For example, atrazine, a pesticide commonly used in corn production, has been found in Midwest drinking water supplies. 

Ben Caldecott is the head of policy for London-based Climate Change Capital Ltd., an investment manager and advisory group. The firm seeks investment opportunities in companies that will emerge and thrive as the world economy accommodates lower carbon footprints. Caldecott worries about distortion in food markets and destruction of tropical forests for palm oil production. “This is the scandal of our age. How’s that going to save the planet?” he asks. (Kennedy notes that palm oil certified by the multi-stakeholder Roundtable on Sustainable Palm Oil offers greater environmental and human rights assurances.)

“Overall, [current commercial biofuels] have been a negative in terms of climate change,” says Jonathan Naimon, the founder and managing partner of Light Green Advisors (LGA), a Seattle-based asset manager focusing on environmental sustainability investing. Producing corn-based ethanol can require more fossil energy than the energy yielded by ethanol, according to studies he cited from Cornell and MIT.

A rash of industry bankruptcies, including leaders Pacific Ethanol, VeraSun Energy and Imperium Renewables, also makes Naimon cautious. The bankruptcies highlight the industry’s vulnerability to such moving targets as feedstock prices, subsidies and tariffs.

Meanwhile, investors are looking at second- and third-generation biofuels made from feedstocks that can be developed on marginal land and won’t disrupt food markets. Such fuels include cellulosic (woody) plants and algae, and they are raising curiosity and cautious enthusiasm. 

Over the next two years, Lane expects biodiesel and renewable jet fuels will receive increased attention and many companies will launch waste-to-energy initiatives (particularly with municipal solid waste). Within three to five years, he anticipates the greater use of wood biomass, sugarcane and jatropha in biofuels. By the end of the decade, he expects a boom in algal feedstocks, an area that’s received a huge infusion of venture capital the last five years.

“The biofuel space has incredible developments and lots of different opportunities,” says Caldecott, whose firm has funded a number of biomass projects in India and China. In India, it’s building cogeneration plants fired by waste sugarcane biomass that will boost energy production and help community members.

Caldecott is under no illusion that biofuels will solve the world’s energy and climate change problems. There’s only so much that can be produced and not nearly enough to adequately accommodate road transportation. But he does see sustainable, advanced biofuels as a bridging technology that can make a big difference in key areas where they can be dropped into existing engines-especially aviation.

Sustainable bio-jet fuels are currently the only viable option for significantly reducing aircraft emissions without canceling flights, says Caldecott, who co-authored a research report on promoting their development and commercialization while head of the Environment & Energy Unit at Policy Exchange, a large British think tank. Unlike cars, aircraft can’t run on hydrogen or batteries. Thus, biofuels can significantly contribute to 2050 emission reduction targets, he says.

Caldecott also sees much promise in third-generation algae-based biodiesel. Exxon Mobil Corp., BP and Chevron have been developing operations, as have some start-ups in the U.S. “The holy grail would be getting algae to directly produce diesel [without having to go through the refining process],” he says. 

Naimon describes algae as “more of a science project right now,” but he thinks Exxon Mobil’s algae biofuels research and development program, a joint venture with Synthetic Genomics, has potential for commercial scalability in the future. Synthetic Genomics’ CEO, Craig Venter, led the team that decoded the human genome. LGA is invested in Exxon Mobil.

Many companies large and small are testing biofuels made with jatropha and camelina, which Naimon says provide a better energy balance than corn and don’t require fertilizers. However, he’s skeptical these “weedy” plants can be cultivated to scale. “The real problem is there are no plantations of jatropha,” he says. (Lane anticipates jatropha will be grown on abandoned land in India that’s unusable for traditional crops.)

Boeing, one of LGA’s holdings, has successfully tested biofuel blends that included jatropha, camelina and algae. But the primary reason LGA is invested in Boeing is the aviation company’s successful development of the fuel-efficient Dreamliner jet, which is designed to use certain biofuel blends as they become available.

Naimon is also interested in waste-to-energy businesses that convert organic wastes from agricultural and municipal waste streams into usable gas or power. “It’s a challenging industry due to the intersection of energy and public policy issues,” he says, “but the result of not doing waste to energy is that we are using coal for baseload power in the U.S. and around the world.”

Naimon mentions a number of companies that LGA doesn’t currently invest in but which he says are very promising in waste-to-energy technology. Two of them are public companies, Covanta Energy and the ABB Group, a Switzerland-based power and automation technology company (where Naimon once worked), and two are private companies, Farm Power and Harvest Power. 

“It’s very early in the biofuels game, but we expect real investment opportunities over time,” says Chat Reynders, the chairman and CEO of Reynders, McVeigh Capital Management LLC, a Boston-based firm focused on sustainable and socially progressive investing. For now, it’s investing in what he describes as backbone plays in biofuels.

This includes Novozymes, a Danish biotech company that gets most of its revenues from the development, production and distribution of enzymes. Novozymes, whose enzymes can be used with nonedible feedstocks such as switch grass and assorted wastes, can help bring second-generation ethanol closer to the industrial arena, says Reynders. 

Farm equipment manufacturer John Deere is another holding. “The farm is becoming much more of a high-tech place. … This is a backbone play on rethinking what the farm is and what crops may or may not be used,” he says.

The idea of replacing food with wood crops, algae and farm waste for advanced biofuels is attractive to Reynders. Should gasoline prices rise, he thinks we’ll see relatively immediate acceptance. But if gas prices fall, he thinks subsidies will be needed to support such biofuels.

Reynders is very excited about algae. One acre can yield about 5,000 gallons of biodiesel, he says, while an acre of soybeans can only generate 40 gallons and an acre of corn yields only 400 gallons of ethanol. Seeing algae proved on an industrial scale is a must. “Maybe we’re a little conservative, but we want to see the rubber hitting the road a bit more [before investing],” he says.

He’s closely watching the algae developments of the oil and gas majors, Solazyme, Sapphire Energy and smaller private companies looking to get patents for growing algae. A pickup in the economy could bring more partnerships, a freer flow of capital and more research dollars, he says.

Trillium Asset Management, which is solely devoted to sustainable and responsible investing, hasn’t invested in ethanol. Monocropping (which degrades farm-rich soil), petrochemicals, pesticides and food security issues “decreased the benefit of biofuels right out of the gate,” says Natasha Lamb, a Trillium equity analyst in alternative energy and technology. The firm also tries to avoid genetically modified organisms (GMOs) and most corn is genetically engineered.

Lamb finds some of the new cellulosic- and algae-based technology compelling. As for investing, “it’s a bit of a wait-and-see approach,” she says. Much analysis is still needed on how much energy it can provide and how much extra carbon it can pull from the atmosphere.

She recently met with Solazyme and KiOR. Solazyme, which feeds sugar to algae, has focused on applications in soaps, perfumes and cake mixes. “It’s interesting, but they’re not really solving the energy crisis issue yet,” says Lamb. KiOR adds its proprietary catalyst to biomass to produce a crude oil substitute. Lamb has some concerns about the biomass it uses, from white pine trees, and would like to learn more about the company’s plans for replenishing them. 

“Biofuels are definitely something to look at [but] they’re not a panacea, sums up Caldecott of Climate Change Capital. He hopes that interest in advanced biofuels won’t draw attention from technologies that could potentially play a bigger role in lowering carbon output, such as electric vehicles and hydrogen fuel cells. Additionally, he says, “This is a complicated space. We need visibility on sustainability criteria as soon as possible to help provide investors with comfort.”

December 2, 2011. Article on FA website can be viewed here.

Leading the Charge – Barron’s


By Tom Sullivan, Barron’s:

High summer gas prices may help drivers decide that this is the year to test drive an electric vehicle (EV). But until charging stations replace gas stations, EV adoption may lack juice. So, who will develop the infrastructure necessary to support electric cars?

“We sure hope that we do,” says Colin Read, vice president of corporate development at ECOtality (ticker: ECTY), one of four key players taking on the largest deployment of electric-vehicle-charge infrastructure in history.

The San Francisco-based pipsqueak lost $1.78 per share last year on revenue of $14 million, and despite its size, in 2009, it beat larger competitors Aerovironment and Coulomb Technologies, winning the U.S. Department of Energy’s largest single grant to deploy EV-charging stations ($99.8 million to install 14,000 chargers in 18 cities). “ECOtality won, because [it is] more attuned to the retail market,” says Jonathan Naimon, managing partner at Light Green Advisors.

In May, the company installed its first 1,000 residential charging stations on the West Coast, and recently opened commercial charging stations (direct-current, fast-charging stations set up like gas stations) in Oregon and Arizona, and announced a pilot program in which Sears will install the chargers in 10 of its parking lots.

Folks in the Northeast may wonder why all the infrastructure seems to be happening out West. It seems that plug-in vehicles are better suited to “temperate” climates, because running the car’s heater prematurely drains the vehicle’s batteries—significantly more so than running the air conditioner.

June 18, 2011

This article can also be viewed on Barron’s website here.