Weekly News | 16th to 22nd August 2022

Codo Advisory keeps an eye for you on the latest events and trends in climate finance and corporate sustainability, in the world and in Japan. Here’s what caught our attention last week.

The US | Biden signs $374 billion energy-climate plan, NGOs still concerned 

• President Joe Biden signed a sweeping tax, climate, and healthcare measure, known as the Inflation Reduction Act, into law. 
• The bill contains $374 billion in energy and climate provisions, including tax credits for electric vehicles and incentives for clean-energy projects, in what the White House says is “the largest-ever single investment to address climate change”. 
• However, many environmental justice campaigners are concerned that the law does not provide enough funding for climate adaptation while also allowing for new fossil fuel pollution, which will continue to have a disproportionate impact on the vulnerable. The bill’s incentives for carbon capture and storage are also seen as posing new risks. 
• Read more about this story: Bloomberg (1), Bloomberg (2) 

The US | ‘Tepid’ demand for U.S. sustainable funds in July 

• According to Morningstar, investors placed $120 million into US sustainable funds last month, a “tepid” sum of inflows that coincided with a broader retreat from mutual funds and ETFs. 
• Morningstar defines “sustainable” funds as those that include ESG factors in their investment procedures. 
• Investors withdrew $13 billion overall from U.S. long-term mutual funds and ETFs in July, leading the longest streak of net withdrawals since Morningstar began tracking the data in 1993. Following a strong year in 2021, ESG-focused funds faltered during the market sell-off early this year, with widespread underperformance and weaker demand. 
• Read more about this story: Reuters 

Europe | Norway to phase out some of its old oil and gas fields prematurely  

• To meet its 2030 climate objectives, Norway may have to phase out some of its aging oil and gas fields prematurely, according to Climate Minister. 
• Norway, Western Europe’s largest petroleum producer, plans to reduce carbon emissions by 55% by 2030 compared to 1990, however preliminary government numbers show that the reduction is only 4.5% as of 2021. 
• The phasing-out is expected to get support from NGOs, however, it contradicts the center-left government’s vow to “to develop, not to phase out” the petroleum industry and would enrage major oil workers’ unions. 
• Read more about this story: Reuters, Economic Times 

The UK | Aberdeen to make the leap from an oil town to a renewables hub 

• Aberdeen, renowned as the “oil capital of the UK,” is attempting to transition from an oil town to a renewables powerhouse in response to rising demand for low-cost home-grown energy. 
• It’s a challenge that oil cities around the world are facing as governments try to transition to sustainable energy and reduce reliance on Russian oil and gas without causing a surge in unemployment from occupations related to fossil fuels. 
• The transition to wind energy in Aberdeen is already well started, however, the majority of the projects will not be operating until 2030 or later. The Scottish government granted permits earlier this year for projects totaling 25 gigawatts of power, which is over half of the UK’s wind target for 2030. 
• Read more about this story: Bloomberg 

Comment from Codo: Aberdeen’s initiative is a good example of how local governments and local industries need to work together to ensure a low-carbon transition at the municipal or regional level. Without this cooperative approach, the climate goals set by public authorities remain virtual, as they can’t be realized without decarbonization of local businesses. Local governments can support private businesses through different means: defining a regional strategy shared with all stakeholders, raising awareness and literacy on the climate emergency, providing financial incentives, adjusting local regulations, etc. 

Australia | Climate action to push Australian green bonds to record year 

• Australian green bond issuance is on track for a record-breaking year, driven by the new government’s commitment to carbon reductions and other climate-change-related actions. 
• So far in 2022, 4.6 billion AUD (3.2 billion USD) of green debt has been issued and looks set to pass last year’s 6 billion total, according to Bloomberg data.  
• Australia accounts for a minor portion of worldwide borrowings focused on ESG challenges, but the legislative change increases the market’s potential. Banks, in particular, have expressed considerable interest in green debt as well as social and governance-related finance, with Westpac Banking becoming the final member of the country’s big four banks to join the Net Zero Banking Alliance last month. 
• Read more about this story: Bloomberg, Japan Times 

India/Japan | Japan’s IHI to partner up with India to burn ammonia with coal  

• Japanese firms IHI and Kowa will deploy ammonia to a coal-fired power plant in western India, in partnership with India’s Adani Power and with a subsidy of up to 20 million yen from Japan’s government-run agency NEDO. 
• India has established a goal of reaching net zero carbon emissions by 2070, but it currently gets over 70% of its electricity from coal.  
• IHI already has ammonia co-firing operations underway in Indonesia and Malaysia. In Japan, the business is collaborating with JERA, a joint venture of Tokyo Electric Power and Chubu Electric Power, to conduct a trial at JERA’s Hekinan coal plant in fiscal 2023. 
• Read more about this story: Nikkei Asia 

Comment from Codo: The reality of the contribution of ammonia-coal co-firing to decarbonization depends on how the ammonia is produced. If the ammonia is produced from fossil sources, this approach is only displacing the problem of CO2 emissions from the electricity production plant to the ammonia production plant, but carbon keeps being released into the atmosphere. A lifecycle approach and the consideration of the whole value chain are essential to guarantee a true contribution to emission reductions. 

Japan | Trade deficit hits record, mainly because of fossil fuels imports 

• Japan’s trade gap widened to 2.13 trillion yen ($15.9 billion) in July, reaching a new high, as rising commodity prices and the yen’s 24-year low added to the country’s economic recovery challenges.  
• Imports into the country increased by a larger-than-expected 47.2% in July, with fuels- petroleum, coal, and liquefied natural gas accounting for the lion’s share. Due to its reliance on imported energy and food, Japan has seen import costs skyrocket as a result of the Ukraine conflict and supply challenges caused by coronavirus. 
• With its longest negative streak since 2015, Japan’s foreign trade was also affected by the yen’s plunge to a 24-year low against the dollar in July, which increased import costs while decreasing export costs.   
• Read more about this story: Bloomberg, La Tribune