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ESG Economist - NZBA loosens climate ambitions
The Net Zero Banking Alliance (NZBA) provides guidance to banks on setting climate goals. Initially, the NZBA had a key principle that banks should aim to limit global warming to 1.5°C above pre-industrial levels by 2100 and work towards transitioning to a net-zero economy by 2050. Banks committed to structure their portfolios according to these guidelines. On April 15, the NZBA released version 3 of its key principles[1]. These principles still align with the Paris Agreement, but the requirement to specifically target 1.5°C has been removed. This change gives banks more flexibility in choosing their paths to reducing emissions. In this note, we consider the potential impact of this change on emission reduction efforts.
ESG Economist - Carbon price for shipping below transition cost
International shipping is responsible for about 2% of the world's greenhouse gas emissions. This means it plays a part in reaching net-zero emissions, which would help limit global warming to 1.5 degrees. The shipping industry follows various regulations and targets from organizations like the International Maritime Organization (IMO), the Poseidon Principles, and the European Commission's Fit for 55 initiative. Shipping was included in the Emissions Trading System (ETS) in 2024. During the IMO's Marine Environment Protection Committee meeting (MEPC 83) from April 7-11, policy measures were discussed to meet the emissions targets set in the IMO's 2023 strategy. This publication focuses on the results of this meeting and what they mean for the maritime shipping industry.
Global Monthly - The only certainty is uncertainty
US policy has been erratic, to put it mildly. Tariffs were announced, paused, and then focused on China, but with key exemptions. It is unclear what the Trump administration actually wants. This makes predicting outcomes even harder. With uncertainty the only real certainty, the global – especially the US – economy is the main casualty. But so, increasingly, is the US’s leadership of the global financial system. Spotlight: The US dollar is facing testing times, but the real test is still to come. Despite the pressures it is facing, we still see no viable alternative.
ESG Economist - Direct Air versus Direct Ocean CO2 Capture
Recently we published an ESG economist about the carbon cycle. There are different places to store carbon such as in the lithosphere, which is the crust and uppermost solid mantle (including fossil fuel reserves), in the soil, in plants, in the ocean and in the atmosphere. But to limit climate change we would need to limit the carbon stored in the atmosphere. According to the Global Carbon Budget there are only 65 Gt, 160 Gt and 305 Gt of carbon left for the 1.5°C, 1.7°C and 2.0°C pathways. This translates into a CO2 budget of 238 Gt CO2, 586 Gt CO2 and 1,117 Gt CO2 for the 1.5°C, 1.7°C and 2.0°C pathways, respectively. As there is only limited availability especially for the 1.5°C scenario, there is a need for technologies that remove carbon from the atmosphere and store it. In recent years we have published several notes on Carbon Capture Storage Utilisation and carbon sequestration geoengineering. In this publication we focus on two technologies, namely, direct air capture and the relatively novel technology direct ocean capture. Direct air capture removes CO2 from the atmosphere and direct ocean capture removes CO2 from the ocean. In the next sections, we compare these technologies and look at their pros and cons. We end with a conclusion.
Important dynamics in the carbon cycle
Carbon can be stored in the atmosphere, ocean, soil, vegetation and in the lithosphere. The carbon cycle is a closed system. To limit temperature increase also the amount of carbon stored in the atmosphere needs to be limited. Limiting the amount of carbon stored in the atmosphere means that it needs to be stored in one of the other sinks and this will have an impact on those sinks.
Tariffs risk recession - a forecast update
President Trump announced sweeping ‘reciprocal’ tariffs based on the size of the bilateral trade deficit. We expect both the US and the eurozone to slow sharply and only just skirt a recession, while the US will also have to deal with higher inflation. Monetary policy divergence is likely to re-emerge as a theme, with the ECB cutting rates further but the Fed remaining on hold. Fiscal stimulus should help drive a eurozone recovery in 2026, but growth improvement in the US next year will be more tepid.
ESG Economist - Carbon offsets: To Tree or Not to Tree?
UN Climate Change has a workstream on reducing emissions from deforestation and forest degradation in developing countries or REDD+. Countries have established the REDD+ framework to protect forests as part of the Paris Agreement [1]. Various companies have certified carbon standards programs to drive finance towards activities that reduce and remove emissions, improve livelihoods and protect nature. Moreover, there is a voluntary market that sells carbon credits to buyers that try to offset the carbon emissions that will take longer to reduce. One of the focus areas of these offsets is planting trees. On 26 June 2024, we published an ESG Economist – Could carbon sequestration technologies help to reach net zero? [2]. One of the biological carbon sequestration technologies is planting trees (afforestation and reforestation). Afforestation is converting long-time non-forested land into forest. Obviously, the intention of these initiatives is good. Generally, it is assumed that deforestation leads to higher global mean temperatures and that forestation will limit the increase of global mean temperature. But as often is the case we need to ask ourselves if all relevant aspects are considered and whether they have the desired effect. This report focuses on that question. We start with the possible climate effects of planting or removing trees. These effects are important to consider when certain carbon offset products are considered. Then we show the results of scientific research. We end with a conclusion.
German bazooka will lift growth but tariff threats loom large
The announcement on Tuesday evening of game-changing reforms to Germany’s debt brake are likely to significantly change the growth outlook. There were three main consequential announcements: 1) a €500bn infrastructure fund, 2) spending on defence above 1% of GDP to be exempt from the debt brake, 3) German länder can now borrow up to 0.35% of GDP (previously zero).
ESG Economist- Batteries have a key role to play if they have low carbon footprints
Batteries play a crucial role in the energy transition by storing the energy produced by intermittent renewable sources and they help mitigating grid capacity limits. The European Commission expects batteries to surpass pumped hydro storage as the main source of providing storage between 2025 and 2030. An updated regulation for batteries entered into force on 17 August 2023. The Regulation sets rules for traceability and transparency across the battery life cycle. Furthermore, it stipulates sustainability requirements, features rules on the circularity of critical raw materials, and establishes requirements on the performance and longevity of batteries. As a result, the carbon footprint framework and recycling rates will become more stringent in the coming years affecting both consumers and producers. The Batteries Directive will have a substantial impact on the batteries on the EU market. The regulation could slow the adoption of batteries and electric vehicles in the EU.
ESG Economist - Geothermal energy has great potential but there are challenges
Geothermal energy can be used for electricity generation and heating and has only a fraction of the life cycle emissions compared to burning fossil fuels. Geothermal energy currently meets less than 1% of global energy demand but it has enormous potential.