In latest years, institutional investors have demonstrated their formidable affect, as firms reply to investor environmental, social and governance calls for and governments be aware of forceful investor calls to motion. Europe’s main investors have been particularly lively, stepping to the vanguard to handle the climate disaster with a way of urgency and injection of ambition.
As Europe pursues its daring “Green Deal,” European investors have a robust probability to assist handle a climate blind spot and coverage vacuum to make sure worthy climate targets should not derailed. Investors can achieve this in a method that generates shareholder worth whereas mitigating one of many largest near-term sources of climate danger. The opportunity lies in addressing methane emissions from the worldwide oil and gasoline business, which emits greater than 75 million metric tons of the greenhouse gasoline yearly.
Europe is likely one of the world’s largest web importers of pure gasoline and may flip this climate legal responsibility into an opportunity to scale back emissions nicely past Europe’s shores. The opportunity offered is critical: if the worldwide oil and gasoline business diminished methane emissions by 45% by 2025, it could ship the identical near-term benefit to the climate as closing 1,300 coal-fired power plants — one-third of all of the coal vegetation in the world.
Many of Europe’s investors have been among the many most lively on methane for years, recognizing it as a cloth ESG danger to their portfolios, albeit one which can be managed with cost-effective current applied sciences. While there was some encouraging voluntary motion by a small group of firms, what’s lacking now could be authorities insurance policies to get options to scale, quick.
The upcoming 2020 gasoline market reform as a part of the European Green Deal provides a pivotal opportunity for the European Union to prioritize the passage of robust coverage to handle methane emissions from pure gasoline, each produced in and imported into the EU. Steady natural gas consumption in the EU and declining EU manufacturing means the EU’s reliance on gasoline imports for consumption reached an all-time excessive of 78% in 2018.
As a progressive chief on climate change and the world’s largest worldwide importer of pure gasoline, the EU is in a novel place to catalyze methane emission reductions amongst oil and gasoline suppliers, together with Norway, Russia, Algeria, Qatar and the United States.
Window of opportunity for EU methane coverage
Although the EU is aggressively shifting off fossil fuels and goals to grow to be carbon impartial by mid-century, the transition to net-zero, low-carbon energy sources will nonetheless require pure gasoline in the energy combine. Today, the EU includes 47% of the internationally traded gasoline market, primarily for heating calls for.
Under the EU’s 1.5 levels Celsius net-zero ambition, the European Commission expects gasoline to be a part of the EU’s energy system till 2050. Even if EU policymakers take radical measures to lower pure gasoline consumption in the quick time period, the quantity of unchecked methane emitted into the air can be a setback for climate targets. Methane is accountable for greater than 25% of the warming the planet is experiencing in the present day. Managing it successfully additionally allows nations to scale back the heightening ambition hole with Paris climate targets forward of the worldwide COP 26 climate summit later this 12 months, the place U.N. leaders can be trying for new regional climate commitments and tangible greenhouse gasoline discount outcomes.
As Tim Goodman, Director for Hermes EOS at Hermes Investment Management in London, summed up in an interview with EDF final 12 months, “Methane is a far more potent greenhouse gas than carbon dioxide — the more that we can minimize its effects, the greater the window the world has to transition to a low carbon economy. Methane’s effects don’t last as long as carbon, but if we don’t tackle methane, we aren’t taking meaningful action to move to a low-carbon economy.”
An opportunity to maneuver the needle
As EU policymakers advance gasoline reform, they have to set strict methane emission management necessities and use incentives to convey suppliers alongside, coupled with constant monitoring and reporting processes to make sure environmental integrity.
EU investors have an imminent opportunity to advocate for robust methane requirements with European policymakers in Brussels and member states, and in addition interact straight with business to construct a broad coalition of assist throughout the pure gasoline worth chain. Producers, importers, exporters and major industrial customers of pure gasoline should all be a part of the answer, and their investor base has a stake in getting this proper.
Fortunately, unprecedented investor engagement in the U.S. this previous 12 months drove many American operators to oppose the Trump administration’s latest rollbacks of methane requirements. But with the U.S. methane regulatory battle now headed into the courts, investors can flip their sights to methane coverage change in Europe by driving extra consciousness round this difficulty as new methane coverage is negotiated by the EU.
Through the investor voice and their engagements, investors can play a crucial function in serving to the EU take international management and switch down the dial on potent methane emissions. As influential investor teams like Climate Action 100+, the Institutional Investors Group on Climate Change, the Principles for Responsible Investment and their members launch their 2020 coverage engagements, methane is an actionable opportunity to advance climate targets whereas managing funding danger.
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