Getting real on net zero; greening crypto
It’s been a slow, sputtering start to the new year, and it feels too early to say anything big. Feb 1 will ring in the Chinese New Year of the Tiger, apparently associated with bold action & big change. Let’s see.
We learned on Jan 1 that the EU plans to label some gas and nuclear projects as “green” investments under the new sustainable finance taxonomy. Predictably, this has unleashed a spate of protests, the latest of which comes from a powerful coalition of investors worth 50 trillion euros, who argue that including gas is incompatible with Europe’s climate ambition. It’s worth recalling that France, the main lobbyist for the inclusion of nuclear, currently holds the presidency of the Council of the EU.
Emmanuel Faber, the former CEO of Danone, opens the next act of his career as Chair of the International Sustainability Standards Board (ISSB), effective 1 January. This is an important role at the helm of a new body charged with developing much-anticipated, globally comparable sustainability standards and disclosure requirements.
Today’s newsletter contains a recent scientific commentary on success factors for net zero implementation, prospects for greening crypto, and more.
Highlights from Green and Sustainable Finance
The meaning of net zero and how to get it right
That’s the title of a recent commentary in Nature Climate Change from 15 authors and it should be required reading for everyone who has the words “net zero” on their website. It offers seven success factors for implementing net zero.
But first, a reminder (seems obvious, but there is an awful lot of net zero “candy floss” out there).
Limiting the rise in global average temperatures to whatever level ultimately requires a balance between the release of carbon dioxide into the atmosphere and its removal into sinks.
The time frame of reference is multi-decadal.
Achieving net zero through an unsustainable combination of fossil-fuel emissions and short-term removals is ultimately pointless. Carbon emissions and removals must balance over multi-decadal time-scales.
Highlights of the success factors:
👉 Front-loading emission reductions - all the scientific evidence supports an approach which can be summed up as “abate hard and fast” (ie don’t delay).
Global temperature change is determined by cumulative emissions, that is, the total of all emissions over time. How quickly emissions are reduced therefore matters.
👉 Tackle all emissions at once. The energy transition is already well underway, but other sectors face uncertain transition pathways and time scales: heavy industries, buildings, food and agriculture, aviation and mining.
In most of these sectors, zero-carbon solutions exist, but they are still costly and not yet as established as incumbent technologies and infrastructures.
👉 An equitable transition will require a thoughtful balancing of responsibilities between countries at different levels of development, a recognition of transitions tailored to “different national circumstances” and concern for distributional impacts within a country. This means, for example some countries may need to reach net zero faster to create room for others that may take longer to reach net zero.
The authors conclude with a warning.
There are clear risks of getting net zero wrong. However, the science leaves no alternatives if global temperature is to be stabilized. If interpreted right and governed well, net zero can be an effective frame of reference for climate action.
Can crypto be green? feels like the follow-up question to the big meme of 2021 “is ESG BS?”
In 2021 Ethereum’s annual energy consumption flew off the charts, putting it on a par with Kazakhstan. Taken together, the top two cryptocurrencies by market capitalization (Bitcoin and Ethereum) are the 12th-largest consumer of electricity in the world, just behind the United Kingdom.
However, there is hope pinned onto an optimization process known as Proof-of-Stake.
Ethereum developers recognized early on that Proof-of-Work would not be sustainable as the network grew beyond a certain size, and so a multi-year plan to transition Ethereum to a more efficient Proof-of-Stake consensus mechanism was set in motion with the launch of the Beacon chain in December 2020.
The hope is that proof of stake will significantly reduce the sector’s carbon footprint.
Crypto and stock markets are increasingly connected
Last month, I shared the BIS report on the “illusion” of decentralized finance. This month, there’s an article from the IMF blog on the increasing inter-connectedness of crypto and stock prices, which are increasingly moving in sync, and how this is a risk for the financial system as a whole.
Crypto assets such as Bitcoin have matured from an obscure asset class with few users to an integral part of the digital asset revolution, raising financial stability concerns.
The stronger association between crypto and equities is also apparent in emerging market economies, several of which have led the way in crypto-asset adoption. For example, correlation between returns on the MSCI emerging markets index and Bitcoin was 0.34 in 2020–21, a 17-fold increase from the preceding years.
Some crypto exchanges are now considering offering stock trading to customers, another example of the walls between the two worlds starting to come down.
From and beyond the podcast
Our latest episode dropped right after Christmas so you may have missed it amid the test-meet-isolate cycle that defined our end of year rituals. I talked to Alice Bell and Alina Siegfried about the new narratives on climate change that are bubbling up in 2022, viewed through the lens of 2 great books they published last year.
“Our Biggest Experiment” by Alice Bell
“A Future Untold” by Alina Siegfried.
It’s a heartwarming and thoughtful reflection on issues which will be important for the climate conversation this year. You can listen to the episode here or wherever you get your podcasts.
Thanks for subscribing, and if you enjoyed this edition, please hit the like button.