Managing Material Change – Some Seasoned Advice
We highlight a couple of themes today – one of which is the need for everything. One of the striking conclusions from Shell’s presentation last week was that the company is not putting its eggs in just one or two baskets, it is investing in almost everything – solar, hydrogen, biofuels, natural gas, physical carbon capture, and natural carbon capture through tree planting programs.
One of the subjects we covered in yesterday’s ESG and Climate piece was the need for global coordination around the price of Carbon. We used Canada as an example of how lack of coordination can potentially drive unintended consequences. Canada’s high carbon tax does not apply to products that are exported – which may drive an increase in exports and an increase in imports to exploit the loophole. One of the headlines in today's report talks about the need for Europe to impose a carbon-related tax on imports, to level the playing field for those paying the carbon tax in Europe versus importers (maybe from Canada) that are not paying the tax. We either need a system of global cooperation where everyone pays the carbon penalty equally, domestic users and exporters, or we need carbon-based import taxes that are equivalent, again on a globally consistent basis. The odds of this level of coordination happening are quite low, in our view and almost any legislation will have exceptions and loopholes that will allow traders to exploit unintended arbitrages. This is probably one of the hardest problems to solve as global Governments attempt to form a coordinated approach to climate-related initiatives.
One of the interesting, but logical conclusions in Exhibit 5 in our February 12th Daily, is that hydrogen availability and cost will not reach a point where it can be used in mid and high-grade industrial heating applications for at least another 20 years. This is very relevant for the chemicals industry, especially for cracking processes and large electric power consumers that currently rely on co-generation. Carbon Capture and Sequestration (CCS) may be the only way that these businesses have a credible path forward that addresses their high carbon footprint for the next 20 years.
There are many noteworthy items in our daily report today, but we focus on two.
A couple of things worth calling out today. First, while we discuss some of the Coke ambitions in the ESG and Climate report published earlier today, we note one important concession from Coke that we believe will need to become mainstream to give consumer products companies any chance of meeting recycling goals, and that is product standardization. The decision to get rid of the Green Sprite bottle is consistent with one of the trends we have been looking for – the green color is a contaminant in any attempt to recycle a clear stream of PET and by taking out the color, Coke will increase the pool of recyclable materials fit for clear bottle use. This needs to be a much more widespread activity and is about more than just beverage bottles. Consumer products companies need to be thinking along the same lines to increase volumes of color-free polyethylene and polypropylene available for recycling – this is likely bad news for the compounders, especially those with large packaging exposure.