As the United Nations’ COP27 climate conference begins in Egypt next week, the search is on among some African nations and poorer countries for the $100 billion in “loss and damage” funding promised to them by wealthy countries by 2020, and now delayed until 2025.
Few wealthy nations, including the U.S., feel flush enough to commit any money this time around, especially with inflation soaring and energy prices at crisis levels. Indeed, only the oil sector seems to be enjoying this year, as profits and dividends leap with oil prices.
Exxon Mobil $XOM made almost $20 billion in profits in the past three months, and Saudi Aramco, the oil company of Saudi Arabia, astonished earlier this week with third-quarter profit of $42 billion. Half of that will go right back to the government in the form of a dividend.
No doubt these numbers are why President Joe Biden and the leaders of other nations are suddenly talking about windfall taxes on oil companies again. As bad an idea as taxing companies for success is, during a week in which world leaders will gather to bemoan their collective lack of progress in reducing fossil fuel emissions it is sure to be a hot topic in Sharm El-Sheikh.
Saudi Aramco’s third-quarter profit alone could pay almost half of Africa’s needs to fight a coming disaster it is not responsible for. We don’t expect any miracles, and we do think this talk of windfall taxes will blow over after U.S. midterm elections next week. But oil giants aren’t doing themselves any favors by standing on the sidelines as these numbers roll in. A more creative approach to the energy transition is required.
More insights below . . . .
Zeus: Five things that could save COP27 from impending failure
. . . . The annual United Nations climate summit begins next week in Egypt against a backdrop of a cascading climate crises around the world, with expectations for a breakthrough at the lowest levels in years, thanks to soaring energy prices and Russia’s invasion of Ukraine. David Callaway looks for clues on how delegates might surprise with a deal or two that could reset the stage for 2023, from new relations between China and the U.S. to a clever financing plan to deliver funding to Africa nations and others facing global warming destruction. . . .
A selection of this week’s subscriber-only insights
. . . . Looks like it ain’t going to be pretty for Wall Street’s big finance firms such as BlackRock, State Street and large banks if the GOP takes over the House (and, maybe, the Senate). That’s because Republicans have promised to go after funders who take ESG into account in making their investment decisions. Read more here. . . .
. . . . A real threat or pre-election saber-rattling? That’s President Joe Biden’s apparent threat to impose a windfall tax on oil companies, most of whom are raking in record profits due to the Ukraine war-induced rise in energy prices. We’ll read the tea leaves. Read more. . . .
. . . . In the past year or so, several huge offshore wind projects in U.S. waters got the green light, with one just announced in the Gulf. But news items have been trickling in lately that this or that offshore wind project is stalled or under threat. What’s going on? Inflation. Supply chain woes, and more — all of which will delay deployment. Read more here. . . .
Editor’s picks: Offshore wind farms set for Gulf of Mexico
Two Belgian activists who targeted Johannes Vermeer's iconic "Girl with a Pearl Earring" painting in a climate protest last week were sentenced Wednesday to two months in prison, with prosecutors saying their action "crossed a line" of acceptable protest. https://t.co/jxMgsDKFWP
— The Associated Press (@AP) November 2, 2022
Two sites chosen for Gulf of Mexico offshore wind farms
The Bureau of Ocean Energy Management this week identified the first two areas for offshore wind development in the Gulf of Mexico, reports NOLA.com. The two areas, a 174,000-acre area south of Lake Charles, La. and a 508,000-acre area near Galveston, Texas, have the potential to generate enough power for almost 3 million homes. That’s enough electricity for the combined populations of Houston, New Orleans and Baton Rouge, the report says. BOEM Director Amanda Lefton said in a statement, “These two wind energy areas represent exciting progress toward having the first offshore wind lease sale in the Gulf of Mexico, where there is a mature industry base and the know-how to advance energy development in the OCS. The Region can play a central role in our nation’s clean energy transition to support good paying jobs, fight climate change.
Breakthrough Energy Ventures expands focus on adaptation strategies
Breakthrough Energy Ventures, the climate-tech investment firm started by Bill Gates, will now expand its focus from developing climate mitigation strategies to providing more support for companies working on climate change adaptation. CNBC reports from a recent Breakthrough Energy summit that Eric Toone, one-half of the Breakthrough Energy Ventures investment committee, told attendees that while BEV’s principal focus will continue to be mitigation, “we will now work on adaptation as part of our portfolio — adaptation to some of the most severe consequences of elevated levels of greenhouse gasses and global warming.” According to the report, Toone said mitigation strategies alone aren’t enough: “It’s time to start accepting reality and that we’re not going to be able to do this fast enough, the ship is too big, it’s too hard to steer.”
Effects of climate change on the natural rate of interest
This working paper from the European Central Bank titled The Effects of Climate Change on the Natural Rate of Interest: A Critical Survey reviews the literature about the impact of climate change on the natural rate of interest (r*), an important yardstick for monetary policy. In the abstract, the authors write: “Economic and financial developments can lower r* in scenarios with increasing climate-related damages and uncertainty that reduce productivity growth and raise precautionary savings. Instead, in scenarios that assume innovations and investments induced by transition policies, r* could be affected positively. Orderly climate policies have a pivotal role by facilitating the transition to a carbon-neutral economy and supporting a steady investment flow. We discuss the main models used to simulate the effects of climate change on r* and summarize the outcomes. The downward effects of climate change on r* can be substantial, even taking into account the high degree of uncertainty about the outcomes. Moreover, the downward pressure on r* will further challenge monetary policy in the long run, by limiting its policy space.” Authors: Francesco Paolo Mongelli, European Central Bank, Goethe University Frankfurt; Wolfgang Pointner, Oesterreichische Nationalbank; Jan Willem van den End, De Nederlandsche Bank.
Words to live by . . . .
“We basically have three choices: mitigation, adaptation and suffering.” — Harvard University Research Professor Dr. John P. Holdren.
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