Net Zero

1. Offsets steam ahead
2. Crushing the competition
3. Tesla vs. Houthis
4. Rental cars returned
5. Cost of climate lawsuits

Climate change fries our brains, and sanctions fry Kremlin oil revenues.

Scandals aren’t slowing offsets

The carbon offset market is poised to surge in 2024, setting up a test of whether the industry’s early attempts at self-regulation are sufficient to crack down on pervasive fraud and greenwashing.

Shell, in particular, closed out 2023 with an offset shopping spree, ending the year as the world’s champion carbon buyer by far, as it sought to compensate for its massive carbon footprint. The oil major was responsible for about 10% of all global carbon purchases, according to Australian financial firm Macquarie.

Top-ranked buyers after Shell include Volkswagen, Texas-based Diamondback Energy, and Colombia’s Terpel. Overall, Macquarie found that demand for carbon offsets fell only 3% from 2022, a sign the market was not much dented by recent bad press about dubious offset-generating projects, such as a forest conservation project in Zimbabwe, which the world’s top offset dealer dropped from its portfolio following investigations suggesting it overstated both the climate and local development benefits of its work.

Fear of reputational damage may keep some buyers away, and a dip in prices also cut into the supply of new credits last year. But for now the carbon market has contracted as much as it is likely to, barring more major scandals, said Macquarie analyst Serafino Capoferri. 2023 also saw a growing number of first-time purchasers, suggesting the market’s reach is broadening — and that its buyers and sellers are willing to forge ahead while major oversight issues remain unsettled.

“The key element that is missing from the market is confidence,” said Mark Kenber, executive director of the Voluntary Carbon Markets Integrity Initiative, an industry group.

Promising renewables news

Global renewable energy installations took a leap forward last year, rising at their fastest rate in two decades, the International Energy Agency reported.

The IEA projects that by 2025, renewables will surpass coal as the dominant source of electricity worldwide, and that by 2028 they will produce more than 40% of global electricity. But the rate of growth is still not fast enough to meet the goal adopted at COP28 to triple renewables above 2022 levels by 2030; to get there, the report says, governments need to make it easier to get infrastructure permits, especially for the electric grid, and help fill a major shortfall of financing for projects in developing countries. The story is different in China, which in 2023 commissioned as much solar as the rest of the world put together did in 2022. The country is expected to hit its 2030 target for wind and solar installations six years early, and to significantly widen its lead over other countries.

Attacks on Houthis drive oil up

The price of oil jumped 4% Friday following rising tensions in the Red Sea. The U.S. and U.K. launched dozens of strikes on Houthi military targets in Yemen overnight, for which the group promised retaliation. Meanwhile, Iran seized a Turkey-bound oil tanker off the coast of Oman, apparently in retribution for the U.S. seizing the same ship last year. Export price cuts by Saudi Arabia have kept the global oil market from jumping too much as a result of hostilities in the Red Sea and the war in Gaza. But that could change if trade disruptions escalate. Meanwhile, Tesla said that it will halt production of EVs at its Berlin factory for two weeks because of supply chain delays through the Red Sea.

Reversing on Tesla

Electric vehicles that the rental car agency Hertz plans to sell from its fleet. The company announced the sell-off — a reversal from its 2021 plan to buy 100,000 Teslas — in a filing this week, and said it will take a $245 million charge to its fourth-quarter earnings as a result. Hertz blamed Tesla’s recent price cuts for damaging the resale value of its fleet. It also said its EVs had higher maintenance costs than anticipated, and that customers were getting into more accidents with them (EVs accelerate faster, and are heavier, than typical cars). Hertz will offset the sold EVs with purchases of new gas-fueled cars — and its EV reversal could deter other rental agencies from their own EV purchases.

The real cost of climate lawsuits

Oil companies are under increasing legal pressure, and it could cost their investors.

This week, the U.S. Supreme Court said it will not hear a bid by the oil industry’s main trade association to move a climate change liability case against it and ExxonMobil out of Minnesota, where the state’s attorney general has accused them of deceptive marketing. Big Oil has a better chance of beating the charges in federal court, legal experts say; in Minnesota, they’re more likely to face multibillion-dollar penalties. The Minnesota trial will be among the highest-profile to watch this year, but it’s only one of numerous lawsuits currently proceeding against oil companies in the U.S.

Some may shake out in the companies’ favor: A judge in Delaware this week ruled the state’s attorney general needs to limit the scope of a suit there to focus only on damages from emissions in the state. But in a paper this week, Oxford University law experts argue that the legal jeopardy that oil companies face poses a major underappreciated risk to their investors. Chevron alone, the researchers found, is facing up to $8.5 trillion in damages from various suits it is implicated in, while the company earned only about $300 billion in net income in the previous 20 years. In addition to direct penalties, climate litigation raises the risk that companies’ assets could lose value prematurely — for example if courts force companies to speed up their emissions cuts, as a Dutch court ruled in 2021 that Shell must do — and that they could face higher borrowing costs.

In other words, the fossil fuel business may no longer be worth the legal risk, study author Rupert Stuart-Smith, a research associate at Oxford’s Sustainable Law Programme, said in a statement: “It’s possible that Chevron’s business may in fact be net value destroying.”

January 14-19, 2024 | Switzerland

Semafor will be on the ground at the World Economic Forum in Davos, Switzerland, covering what’s happening on the main stages and lifting the curtain on what’s happening behind them.

Sign up to receive our pop-up newsletter: Semafor Davos (and if you’re flying to Zurich let us know so we can invite you to one of Semafor’s private convenings).

New energy

• China is running out of ability to connect more rooftop solar panels to its electric grid. Solar industry advocates are encouraging policymakers there to change how electricity is priced, which would incentivize the buildout of more utility-scale batteries and allow more renewables to work with the existing grid.

Fossil fuels

• Chesapeake Energy and Southwestern Energy will merge in a $7.4 billion deal that will create the largest natural gas producer in the U.S. The deal is based on a conviction that fast-rising LNG exports will solidify a larger, long-term global market for U.S. gas.
• Despite exports hitting a record high, President Joe Biden is no friend to the oil industry, Mike Sommers, president of its main trade group, warned. In a speech to the American Petroleum Institute, Sommers said Biden “is on the cusp of spoiling the American energy advantage” by restricting drilling lease sales and pushing too aggressively for electric vehicle adoption.

Politics & policy

• By 2050, the European Union will need to capture 450 million tons of CO2 a year — equivalent to the annual emissions of Poland and Denmark combined — to reach its ambitious climate targets, new estimates show. In 2022, the global capture capacity was just 50 million tons according to Bloomberg NEF. The goal is part of a wider sustainability strategy the EU is expected to release next month.
• Russia’s revenue from oil and gas fell last year by almost 25% as a result of U.S. and European sanctions. Without strong fossil fuel income, the country’s budget deficit is widening as it plans a big increase in military spending for its war in Ukraine.
• California Governor Gavin Newsom will cut $2.9 billion from the state’s climate programs. Clean transportation and coastal restoration are among the programs on the chopping block as the state tries to patch a $40 billion budget deficit.

EVs

• The Consumer Electronic Show, an annual showcase once defined by the launch of laptops, smartphones, and other gadgets, is now dominated by the world’s biggest automakers. In recent years, launches of EV concepts from BMW, Ram and Chevrolet have captured attention. “This year,” Heatmap reported, “it was Honda’s turn to make a splash” with the debut of two EVs it hopes to launch in the U.S. in 2026.
• Tesla will increase wages for U.S. factory workers, who United Auto Workers have attempted to unionize. The EV manufacturer joins Toyota, Volkswagen and Hyundai in hiking pay after UAW secured rises from Detroit’s carmakers last year. Despite not disclosing how much wages were raised by, the head of UAW said the bump still fell “far short of what the companies can afford and what autoworkers are worth.”

Personnel

• Xie Zhenhua, China’s climate envoy who worked closely for years with his U.S. counterpart John Kerry, stepped down for health reasons. He will be replaced by former vice foreign minister Liu Zhenmin. Kerry is also expected to retire this year.

Clayton Page Aldern, neuroscientist and environmental journalist. His forthcoming book The Weight of Nature explores how climate change is changing our brains.

Semafor’s 2024 World Economy Summit, on April 17-18, will feature conversations with global policymakers and power brokers in Washington, against the backdrop of the IMF and World Bank meetings.

Chaired by former U.S. Commerce Secretary Penny Pritzker and Carlyle Group co-founder David Rubenstein, and in partnership with BCG, the summit will feature 150 speakers across two days and three different stages. Join Semafor for conversations with the people shaping the global economy.

• Big banks mull the unthinkable: suing the Fed.
• AI ads are sweeping across Africa.
• Former Taiwanese leader’s comments could cost his party the election.