The IEA has published another report looking at energy intensity progress – noting that the rate of improvement in energy use is likely not fast enough to do its part in achieving net-zero needs. It is a comprehensive report (linked here) and we have chosen a couple of charts as you can see in today's daily report. The more interesting conclusion within the analysis may be that the IEA expects plastic collection for recycling to rise from 17% to only 27% by 2035. While this is a global average and will differ by country and likely by material, the overall rate looks low (but probably reasonable) and too low to allow packagers to meet recycle content goals, many of which are either 2025 or 2030 targets. We discuss some of the evolving packaging challenges in our ESG and Climate report today.
We highlight more from the IEA on the importance of EVs versus other vehicles to bring down “well to wheel” carbon footprints and the second (not unexpected) “kick in the pants” chart that shows the World woefully short in terms of its projected EV adoption rate. There are – probably expensive – hurdles to reaching the IEA net-zero goals with respect to EVs. The first is going to be the need to pay or tax consumers enough for them to give up a perfectly good ICE vehicle long before the end of its natural life.
It is interesting to contrast Linde and LyondellBasell with Air Products and Dow. Air Products and Dow have transitioned away from the more generic messaging around broad objectives, and while they still have them, have started talking about concrete plans and spending aimed at lowering carbon emissions. Dow has a project on the books that will lower the emissions of existing capacity while Air Products is talking about greenfield low carbon investments at this point. Many of the commentators and climate activists are calling for concrete plans as opposed to broad objectives and we suspect that most of the narrative will move that way across energy and materials.
Our ESG and Climate Piece today focuses heavily on COP26, which begins this weekend, and has been the subject of many of this week's stories, as attending countries make their concerns and preferences known and as companies and lobbying groups try to be heard. The linked FT article talks about the minimum needs from COP26. We highlight this because we have been talking about the same things for months – the significant gap between what is pledged for 2030 and what is needed, and the need to attack emissions of methane and CO2 aggressively. The methane issue can likely best be achieved through legislation – especially as some of the leaks around the world may not belong to anyone, who could benefit from an incentive or be penalized for the leak. The CO2 emission issue will always be bet addressed through a pricing mechanism on carbon.
The Financial Times opinion piece linked in the bullet below and from which the chart is taken has used the IEA data that we have featured in recent work. The piece comprehensively walks through how the world is likely to come up short, and while it gives the measures that are needed and the money that likely needs to be spent, it is not an optimistic review of what will most likely occur. We remain firmly of the belief that much more progress could be made if there was a global agreement to make carbon very expensive – accompanied by an agreement on how to share the spoils of that expensive carbon such that the inflationary pressures are offset where they are most needed and that environmental injustices are minimized – this is idealistic are we recognize that.
If you look back at our ESG and Climate piece this week (EIA View Suggests Natural Gas & CCS Critical To Net-Zero Goals), you will note that we focused on the recent EIA global energy outlook, and another chart from this outlook is shown below. In the ESG report, we talked about the global need to support increased “clean” natural gas use to offset as much of the coal predictions in the chart as possible and to drive additional hydrogen production to offset some of the petroleum product demand that the EIA still expects to be sued as a transport fuel in 2050. We also called for the broad and warm embrace of CCS so that some of the fossil fuel that the EIA is predicting – especially all of the fuel used for power in the exhibit below. Yesterday Air Products announced not only a large blue hydrogen complex for Louisiana but also the CCS to support it and made a very compelling argument in its presentation for the need for substantial volumes of blue hydrogen – something we fully agree with. We covered the subject in detail in yesterday’s daily. “Blue Is The Color, Hydrogen Is The Game…”
The IEA chart in the exhibit below is another stark reminder of how far away stated policies for clean energy are from what will be needed, and the 2030 gap is the most significant in our view as there is little time to correct it. The IEA has presented several studies over the last year that presents a series of “straw men” examples around how the World and, most recently China, might meet their respective net-zero targets, and the chart below is intended to show how far adrift we are, comparing what is needed to what has been stated. As we have mentioned a couple of times, it would be unusual for companies and countries to have firm plans for 2050 that sum to what the IEA is looking for as there are new technologies under development and the incentive/penalty landscape is still uncoordinated and very unclear. The latter is also a problem looking forward to 2030, but closing the gap between the STEPs scenario and the NZE scenario by 2030 looks almost insurmountable today, without a much tougher and more globally coordinated regulatory landscape, which looks unlikely given some of the low expectations for COP26 specifically. Note that how under the Net-Zero scenario discussed by the IEA, fossil fuel would peak by 2025 and compare this with the EIA analysis that we discuss in today's daily report – there is a huge disconnect.
A couple of things worth highlighting in today's daily report – the first being Chevron’s move to join the net-zero club – focusing all eyes now on ExxonMobil in particular but also the rest of the US E&P crowd. Chevron will have some major challenges getting to net-zero and will likely face much of the same skepticism that bp, Shell, and TotalEnergies attracted in Europe initially and still face today. The Europeans have placed a lot of their bets on moving into renewable power – for the moment, Chevron is focused on moving to net zero in its own operations, which we read as biofuels and a lot of CCS. Given the acute shortage of international natural gas, it would make the most sense for the independent natural gas E&P companies and the LNG sellers to jump on the same boat. By promising low carbon natural gas and LNG, the industry is much more likely to gain support for the expansion that the world needs to counter some of the EIA assumptions around coal and petroleum product use from 2030 to 2050. Of course, it would be a whole lot easier for the US industry to do this if they had a value on carbon to work with! The chart below looks at one of the core clean-up issues, which is methane leakage. This is a subject we cover extensively in our ESG and Climate service linked here.
The gaps in the exhibit below are not surprising as 2050 is a long way away and we would not expect all of the needed capacity to be announced or pledged yet, especially as many companies are still weighing alternatives. For example, as an ethylene producer, you have 5 paths – hydrogen as a furnace fuel – electric power as a heating medium – stick with what you have and use CCS – find an alternative route to make the polymers – make alternative polymers.
Overnight there has been a very good IEA report on how China could get to net-zero by 2060, and further news of more industries hit by power cuts because of power shortages, some of which are apparently due to tighter emissions standards. These are both important and far-reaching topics and will require some analysis to provide the kind of insight that we believe is necessary, and accordingly, we will push these to next week’s report (all input welcome). In the meantime, we have included a couple of charts that show the way up and the IEA view of the way down. The power outages are interesting as while they may cause some manufacturing cutbacks and we have seen recent news to that effect, China has overbuilt in the last couple of years relative to domestic demand growth, and with port and shipping congestion the country has surpluses of many products sitting around at very low values. The power moves may help correct some of these imbalances and we are already seeing some chemical prices bounce off recent lows because of production cutbacks. We discussed the acetic acid chain in one of our dailies last week – linked here.