We have noted several renewable natural gas initiatives in the US and the data in the chart below shows how much methane is emitted by agriculture – the largest source after natural leakage. The agriculture-based RNG projects only make economic sense today where you have access to very large farms, where customers are willing to pay a premium, or where you qualify for incentives. That said we expect more projects, with growth stories at companies like Archaea Energy dependent on building new projects. The chart also shows how much emissions flow from the energy industry and this has been a more acute focus for remediation since COP26. See more in today's ESG and Climate report.
When we highlighted the Ag equipment names as interesting in our daily report earlier in the week, we had not realized that a Deere earnings announcement was imminent. The high farm profitability in the US is giving farmers some freedom with spending at a time when the equipment makers are hitting the market with some exciting new products – especially autonomous machinery – which can save on labor costs. The ESG angle here is further advances in precision agriculture, which can allow for more output for fewer inputs. There is also a very strong push towards low-till and no-till farming (to lower net CO2 emissions or increase CO2 capture) and this is an opportunity for the equipment makers to sell new equipment.
It is interesting to note both 3M and Michelin addressing water in their ESG narratives - Exhibits below. Water is not getting a lot of air time from the ESG crowd yet, but it is very much on our radar and we will publish our first water index in tomorrow’s ESG and Climate report.
We have not spoken much about the agriculture industry and its emissions footprint – but it is significant and the sector is coming under greater focus as a consequence. It is not clear to us that the chart below is complete as it does not appear to include the carbon footprint of the fertilizer used in farming unless it is included in the fossil-fuel category, which seems unlikely. Much of the renewable natural gas planning in the US is relying on farm-based production, and there are initiatives to increase the amount of “low-tillage” farming as it has the effect of releasing far less CO2 from the soil than heavy tilling/plowing. Some of the categories listed below can be addressed through better land and waste management, but others will require offsets, another reason why the offset market needs work. For more on carbon offsets see today's ESG and Climate report.