Net Zero

1. Wall Street’s climate breakup
2. Fossils drag the market
3. “Gold” hydrogen hits big
4. Exclusion costs
5. Broken anti-coal strategy

United Airlines gets clean fuel, and weather balloons get smart.

Wall Street’s climate breakup

Three of Wall Street’s biggest money managers are walking away from a group that coordinates investor action on climate. JP Morgan’s asset management wing and State Street are leaving the Climate Action 100+ group, the companies said Wednesday; BlackRock is handing off its involvement from headquarters to its smaller international arm. The firms have been under tremendous political pressure to distance themselves from ESG, and groups like Climate Action 100+ have been accused by some Republican lawmakers of potentially illegal anti-competitive coordination. The group also riled some of its members last year when it decided to focus more energy on pressuring high-emissions companies to decarbonize, a step up from its original focus on emissions disclosure, which big asset managers generally support. Leaving the group doesn’t necessarily mean these firms are dropping climate as an investment consideration altogether — it just means they want to do so more quietly, on their own terms.

Fossils drag the market

Dropping fossil fuels has been a winning investment strategy over the past decade, according to an analysis of market data by IEEFA, an energy think tank.

Money invested in a version of the S&P 500 with fossil fuels stripped out would have grown 6% more since 2014 than in the index as it stands. Energy companies in the index alone, which are heavily weighted in fossil fuels, performed far worse than the market average. The findings suggest a flaw in the reasoning of anti-ESG crusaders, which is that climate-conscious investing is inherently an abnegation of fiduciary responsibility. Instead, it’s increasingly clear that avoiding fossil fuel stocks is a smart play, IEEFA argues, given that “the traditional value thesis underlying the industry — that the fossil fuel industry and economic growth are inextricably linked — is eroding.” New York State’s pension manager seems to agree: This week he sold off some of the state’s investments in eight oil and gas companies, including Exxon, because they’re not doing enough to transition. But it’s not clear that divesting from these stocks puts noticeable pressure on oil companies to pivot their business model.

“Gold” hydrogen hits big

A new low-carbon fuel just got a major vote of confidence from investors — but it’s still years away from making a dent in the energy transition.

Denver-based startup Koloma closed a $245 million Series B fundraising round last Friday, a big haul by climate tech standards. The company is developing technology to find and tap underground reservoirs of naturally occurring hydrogen gas. The idea is that geologic hydrogen — also known as “white” or “gold” hydrogen in the industry’s rainbow-inspired jargon — could be mined at lower cost and with a lower carbon footprint than hydrogen produced from fossil fuels or even from renewable electricity.

Hydrogen is a kind of magic key in the energy transition, a fuel that could replace hard-to-electrify molecules combusted by factories and commercial ships and vehicles. But today its rollout is complicated by a basic tension: Existing methods of hydrogen production can be cheap, but have little or no benefit for the climate over traditional fossil fuels, while truly low-carbon hydrogen is very expensive.

Over the next decade, as regulators ramp up pressure on industrial energy users to decarbonize, more will be willing to pay a premium for verifiably clean hydrogen. Businesses that can produce it cheaply will be in position to pocket a windfall — hence the big bet on Koloma. In an interview, Koloma co-founder (and former NASCAR racer) Paul Harraka said the company sees itself as a technology purveyor more than a mining company per se, using its newly-raised capital to expand its Ohio labs and refine its inventions, which are essentially the picks and shovels that other companies might use for hydrogen mining.

Exclusion costs

Additional cost for the global economy to reach net zero by 2050 if China is excluded from global clean energy supply chains. That’s an extra $6 trillion over what it would cost to reach net zero with Chinese hardware, according to a Wood Mackenzie report, which is steep for U.S. and European policymakers struggling to balance their climate ambitions with the desire to build out local manufacturing facilities. But it may be a price they’re willing to swallow in the interest of unwinding China’s economic leverage.

Broken anti-coal strategy

Rich countries’ main strategy for speeding up the energy transition in developing countries isn’t working, due to a lack of personnel, cash, and public buy-in, according to a Rockefeller Foundation report.

Just Energy Transition Partnerships are a way for the U.S. and other donor countries to organize the delivery of grants and low-cost loans aimed at closing down coal-fired power plants and building renewable energy. Splashy commitments totaling $46.5 billion have been announced in South Africa, Vietnam, Indonesia, and Senegal. But the JETPs “haven’t proven to be a silver bullet” and, three years after their inception, have nothing yet to show in terms of tangible emissions cuts that wouldn’t otherwise have happened, said Joseph Curtin, managing director of Rockefeller’s power and climate portfolio.

It may just be too early to judge, given the scale of change envisioned by the programs, and a JETP deal backed by the Asian Development Bank to prematurely close one coal plant in Indonesia is expected in the first half of this year. But one big problem, Curtin said, is that headline-grabbing announcements of government donations haven’t done much to lure private investors, without whom the effort falls apart, because the announcements have so far come before anyone has actually identified specific projects to invest in.

“You need to raise money around key strategic projects rather than looking for a big number that looks great in a press release,” he said. “The private sector doesn’t invest in ‘countries,’ they invest in projects.”

To make future JETPs viable — Colombia, Kenya, Nigeria, Mexico, Thailand, Kazakhstan, Mongolia, and the Philippines have all expressed interest — host countries need to be more proactive in identifying those projects, he said. But they usually lack the human resources to do so; beefing up the climate teams within developing countries’ finance ministries is something philanthropy groups like Rockefeller should do more of, he said. And because more concessional funding is near-impossible to squeeze from rich donor countries, more creative financing models are needed. Rockefeller is working on a first-of-its-kind deal in which the early closure of a coal plant in the Philippines would be financed through the sale of carbon offset credits.

Fossil fuels

• Nine Democrats joined every House Republican in voting to overturn President Joe Biden’s pause on new LNG export terminals. The vote is symbolic, but underscores how divisive the pause is within the president’s party.

Finance

• A coalition of 21 universities in the UK that together control $6.3 billion are asking their bankers for greener investment options. Firms that can’t commit to reducing their ties to fossil fuels risk losing the universities’ accounts, they warned.

Tech

• A scrappy Bay Area startup beat Google in the accuracy of AI-driven weather forecasts, my colleague Reed Albergotti scooped. WindBorne also said it now controls the world’s largest fleet of weather monitoring balloons.

Politics & policy

• President Biden promoted a top electric grid official, but the concurrent retirement of one of the official’s colleagues may freeze one of Biden’s best remaining avenues for climate action. Without a quorum, the Federal Energy Regulation Commission won’t be able to make progress on speeding up clean energy permits.
• Ukraine charged a Russian general and four of his officers with ecocide in relation to a 2022 attack on a nuclear energy facility. They’re the first defendants to be named in Ukraine’s quixotic campaign to hold Russia accountable for environment and climate-related war crimes.

EVs

• BYD, the world’s top EV maker, is scouting locations in Mexico for a new factory that would allow it to tap U.S. customers for the first time. Exporting EVs from Mexico would allow BYD to bypass the tariffs that have kept it out of the U.S. so far. The plan could pose a serious threat to Tesla and other automakers whose U.S. markets have so far been safe from BYD.
• Canada’s Monde Graphite signed major supply deals with Panasonic Energy and General Motors for battery components. The company’s share price jumped 25% on the news.

Andrew Chang, managing director of United Airlines Ventures. As of this week tech companies, airlines, and other investors have placed more than $200 million in United’s Sustainable Flight Fund, which invests in low-carbon aviation fuels.

Wednesday’s One Good Text misspelled the name of Onward’s CEO: It’s Jeff Allyn, not Jeff Allen. Sorry about that Jeff!

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• India cracks down on reignited farmer protests.