Playing right into the central argument of our ESG and Climate report is today’s ExxonMobil investor day, and we include a couple of key slides around the company's proposed path to net-zero below. The first slide shows just how much blue hydrogen (with CCS) the company plans to add to offset its emission-generating fuels – the volumes implied in the chart are high.
Despite the “soaring” carbon offset market in the FT article linked here, we would remind clients that this is something we have written about extensively and that while “nature-based” offset prices have jumped over the last year they remain very low compared to the physical cost of carbon abatement, whether through reforestation or physical abatement for CO2 emitting fuels and processes. The nature-based credits should at least rise to the physical cost of planting trees and maintaining forests (adjusting for the risk of fires etc). This is well above $50 per ton in our view and maybe as high as $100 per ton depending on how you define the costs. The very low price today, despite the recent rise, reflects an oversupply of credits perhaps, but it may also reflect buyers' unwillingness to pay more because of the uncertainties around accuracy and chain of custody of the credits. If the credit truly reflects the removal of 1 ton of CO2, at $14 per credit, someone is subsidizing the credit – maybe those planting the trees. The chart below shows carbon values at the end of December. See our ESG and Climate report No 57 for more.
There are several headlines today that speak to one of the most pressing issues that we have with the pace of energy transition – the competition for renewable power and the likely inability of the industry to keep up with the competing needs, let alone do so without significant power cost inflation.