In today’s Exponential Investor:
- People on private jets are mad we didn’t do anything
- Cash for crises
- Politicians are making net zero goals harder to reach
It’s that time of year again. Our fearless leaders saunter off to their rented private jets, head to an exotic location that’s out of reach to most, share problems over imported French champagne and collectively wring their hands about climate change.
The 27th Conference of the Parties to the United Nations Framework Convention on Climate Change, or “COP27” as the media refers to it, started this week.
Of course, we’re meant to ignore their soft, yet water-hungry cotton shirts, their chromium-tanned leather shoes, or the fact that they are preaching from a room with lights and air conditioning powered by coal.
Then again, it’s not like many of us could copy them… especially turning the lights on when energy prices are so high.
I jest, of course.
But it’s these very scenarios that make it hard for us mere mortals to take COP27 seriously.
Once again, people are keen to point out the hypocrisy of the event.
Amateur plane spotters count the number of heavy carbon-emitting private jets landing in Egypt.
Like picking at a scab, poorly known politicians desperate to get their mug on prime time will use this as the chance to fire up their fan base.
One Australian political back-bencher told a TV network the western world is “getting played” like a “fiddle”, saying “I mean, when are we going to wake up to ourselves and stop being so gullible that these climate change conferences are in any way about changing the temperature of the globe?”
While I loathe to give either this politician or TV network airtime, a room full of politicians, diplomats and bureaucrats isn’t going make any difference to climate change.
Because they are the problem.
A junket won’t fix it
Early stories from COP27 tell us that Scotland and several European countries are pledging compensation for the climate impact that the industrialised west has wreaked on the what is becoming known as the “global south”.
Cash for environmental crises doesn’t solve the issue, but it does make for good left-leaning headlines. We’ll chew over the absurdity of this another time.
As much as getting together with a few equally powerful people in a room kicking around a few ideas over drinks sounds like fun, it doesn’t change a thing.
The world leaders duly noted this, with Nikkei Asia writing:
One of the great disappointments overshadowing the COP27 climate change conference is how little has been achieved since COP26.
Bold promises made last year in Glasgow for a renewed agenda on tackling global warming have been drowned out by Russia’s invasion of Ukraine.
Well, yes. That’s because the first land war on European soil in more than 70 years is going to take precedence. Secure energy and food sources are bound to take precedence if supply may be at risk.
More to the point, tut-tutting by governments doesn’t encourage any of us to act quicker. Especially when the energy transition is being bungled due to those very governments.
Government mandates holding back progress on climate change
When I was at a mining conference last week, on almost every single panel I watched, the consensus was the same.
There is too much focus on the “E” in ESG (environmental, social and governance), but almost none on the “S” and the “G”.
What our powerful political friends don’t realise is that their restrictive policies are preventing them from getting things out of the ground. The very minerals we need to make this energy transition happen.
Let’s take the government-mandated reporting on carbon emissions categories, for example.
Called “Scopes 1,2 and 3”, these levels are the way companies must categorise their carbon emissions.
Scope 1 emissions are what a company is responsible for directly (like running a boiler). Scope 2 are the indirect emissions, like buying electricity. Scope 3 are the indirect emissions from business partners, which are outside of the company’s direct control. Think suppliers, manufacturers, or miners.
Scope 3 are almost impossible to measure, representing the entire value chain, yet businesses must consider those carbon emissions and look to mitigate what they can’t quantify.
Banks are reluctant to invest in certain mining projects because it adds to their Scope 3 carbon emissions.
I’ve personally spoken to bankers with decades of experience in mergers and acquisitions, and you would be very surprised at the number of deals that fall through solely because a bank won’t take on the carbon-emission risk attached to a project.
As one panellist neatly summed it up last week, “I know the government has these mandates, but the lines of capital aren’t available to get us there.”
Yet the irony is that, unless many thousands of financiers suddenly invest in exploration, developing and producing the minerals needed, net zero will be nothing but a fantasy.
Permitting is another issue that continuous to hamper net zero goals.
Governments are continuing to shy away from green-lighting new parts of the mining process for fear of public backlash. Permits in the United States, for example, can take up to ten years. In Canada and Australia, less than three.
This isn’t to say that miners should be digging up the earth with reckless abandon.
They’ve done that for the past century, causing some horrific problems, and they should absolutely be held to a much higher environmental standard today.
If governments want to reach their own net zero 2050 targets, something has to give. While we’d love to be recycling and reusing everything we already have above ground, that technology is decades away.
In the meantime, governments are going to need to allow banks more freedom to invest in miners… while speeding up the permitting process.
In short, they need to work with the mining industry that will get them to their targets, not lecture us from a podium.
The problem with COP27 isn’t its objective. Addressing climate change and striving for progress is extremely important, it’s just that the wrong people are speaking in the room.
Until next time,
Co-editor, Exponential Investor