Sustainability, Clean Energy, Recycling & ESG

We note the Blackrock headline below about protecting biodiversity among other things and relate this to a section we wrote in yesterday’s ESG and Climate piece around carbon taxes and staff motivation. Companies are being asked to do too much and address too many issues at once that do not have empirical frameworks:

• Lower your environmental footprint
• Reduce waste
• Increase diversity
• Become more sustainable
• Protect the natural environment
• Oh, and while you are doing it, increase shareholder value!

In response, PR savvy companies are making broad statements around intent, even if they are not sure what to do next or whether it can be measured and valued. In extreme cases, these statements of intent, especially if they are very selective in the data they use or the topics covered, increase the chances that companies get accused of “greenwashing” – note the Chevron news this week and our comments in the report linked above.

But there is a further problem that will be causing major headaches in many companies – how do you motivate staff. Energy, Industrial and Materials companies are under fire, and while some may be putting on a brave and collaborative external face, internally they all have problems, as staff (at all levels) are confused – they see their industry and therefore their jobs at risk and they see new intangible objectives being imposed in the press and in some cases by shareholders that they have no experience and/or no idea how to fix. Plus – there are now too many issues to address and the likelihood that none gets the necessary focus and all fall short is very high. Everything in the list above is important, but there will only be a handful of standouts who over the next 5 years make enough progress on all fronts, and the more progressive management teams in the eyes of the press and the shareholders cannot afford to take their eyes of staff, who they might unconsciously be alienating through their public stance, but without whom they will not be able to get anything done.

As we discussed yesterday, a carbon tax, might be unpopular with politicians, but if I am the CEO of an energy or chemical company, the imposition of something tangible gives me something to rally the troops around. Intangible is much harder and setting tangible internal goals without a tangible external frame of reference other than “do better”, is much harder.

Just taking one example, the map below shows the level of CCS pipeline infrastructure that the US might need for an optimal carbon sequestration model. Almost none of this exist today, but a carbon tax could rally employees around new objectives associated with this. 

Source: Carbon Capture Coalition, March 2021

The “adapt or die” headline targeting the US oil industry which was featured in our Daily report yesterday is a bit extreme, especially for an administration that does not believe it can enforce a carbon tax or cap and trade system. If the investment community were to make that statement frankly today it would have more credibility. There is talk about a Senate-sponsored bill to ban methane emissions or at least aggressively penalize them – which would be a better approach. Putting a high price on methane could encourage the use of some interesting small-scale technologies to turn local methane supplies into LNG, or methanol, or ammonia/urea. We have discussed all of these technologies in prior work and are happy to discuss them with anyone interested.

The other more interesting take on “adapt or die” might be “adapt and thrive”, which is likely a more palatable message to give to the energy industry. While the US seems to have limited teeth from a regulatory perspective, the rest of the world does not, and the ability for the US to produce lower carbon fuels may give US producers a competitive edge globally – see our ESG and Climate piece from Wednesday

We are back on plastic waste today, following the IHS World Petrochemical Conference post that collaboration is key to evolving the circular plastics economy, reminding us what the largest challenge is regarding creating a circular plastics economy. Our work on trying to find a waste solution for a specific source material that we have discussed in prior reports has shown us firsthand how difficult it is to get the parties that should be interested in collaborating to talk to each other. While some see the waste problem as an urgent need, generally those that have the waste and are looking for a solution, others that are needed to complete the chain, have the issue far down their list of priorities. Making matters worse is that the margin in the collection, sorting, and then finding the most appropriate home for different streams of waste, is very small unless you are very efficient and/or unless you know that you are getting a disproportionate amount of material that can be upgraded (mechanically recycled) versus downgraded (chemically recycled).

An added complication is that when China was taking waste, there was a payment for the mixed plastic and consequently, many who were involved in that trade are used to being paid for the waste – and have higher expectations of the margins to be shared than are likely available – in other words they want more for the plastic than it is worth locally, especially in a downgrading chemical recycling process.

Source: ResourceRecycling, US Census Bureau

In the chart above, it is likely that the prices being paid for the plastics that are being exported are very low and we have seen instances of local municipalities paying to have waste removes as it is less expensive than landfill – this is a mindset that is needed broadly to generate solutions for waste disposal and the optimal use of the various plastic waste streams. IHS is spot on with its call for greater collaboration, but that collaboration is not at a national level as the waste polymer is spread nationally and internationally and is a problem for local municipalities, counties and if they are coordinated, States, within the US. It is not one instance of collaboration and investment that is needed - it is thousands and while some solution investments may be common, many may not be. This one of the reasons why we believe that the chemical recycling ambitions of the chemical majors are wildly optimistic, given that outside of very large urban centers, they will need to work with hundreds of distinct local groups to get more material into the system. There is much more on plastic waste and recycling options in our March 3^rd ESG and Climate Piece - Trash, or Treasure: Waste Plastic Challenges and Opportunities