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(Runtime: 5 min, 41 sec; size: 4.27 MB)
Brian See, portfolio manager, CIBC Asset Management.
Carbon is going to be a very important aspect coming into the investing environment, particularly as it pertains to ESG, which is a large focus in the investment community. As it pertains to carbon specifically, it’s important to note that the world produces about 33 billion metric tons of carbon, and that amount has been rising since the 1950s. And so this amount of carbon actually makes up about 75% of greenhouse gas emissions and it continues to grow as the world continues to consume more and more energy.
It’s also important to note that from a contribution, China and the U.S. actually make up about 45% of total carbon emissions, while Canada is around 2%. So, much of the world is still relying on fossil fuels — including coal, oil, and natural gas — and this is going to continue. It’s an important aspect and it’s something to monitor as we go forward.
Companies are responding a variety of ways to the carbon challenge. I think the overarching premise is to pursue cleaner and greener alternatives relative to the traditional fossil fuels. One of the techniques that companies have been doing is to simply shift and pursue more renewable alternative energy — things such as solar and wind — and introducing that into portfolios. We’ve seen that in the utility sector where it used to be natural gas weighted and now they’re shifting the power needs to be relying upon solar and wind. That’s one example.
Other examples of what companies are doing is carbon offsetting techniques. And so what this involves is potentially sequestering the carbon and putting it underground and driving a credit from this to offset the actual carbon activities that they would be generating from traditional fossil fuel activity. These are just a couple of the things that companies are doing today to take on the carbon challenge. It’s just an overall important aspect because the world is quite aligned with this, given that the world is trying to achieve the two degree temperature target in the long term.
I think companies can do a lot to just reduce the carbon emissions. I mean, the key point is it’s not just energy companies in general, which I think often gets the bad rap of it. If we look at total global emissions consumed through the entire value chain, the carbon that’s produced by oil companies, specifically at the wellhead, it’s only about 10 to 12% of overall global emissions. The bulk of the emissions — 80% — is really produced by end users, whether that’s coming from the factories or the automobile or the airplanes. Carbon is not just a energy perspective, but it’s everybody’s issue. And so I think that’s something to be cognizant of just in terms of tackling the challenges. It is a phenomenon that everybody has to face.
And so, one of the key aspects is the concept of technology and where this comes in. Electric vehicles are going to be a big component of the carbon mix because as people switch in the longterm from gasoline vehicles to electric vehicles, that could reduce the carbon footprint. And that’s going to help everybody from the end consumer to automobiles, as well as the tech companies. That’s one area. The other areas that companies are focusing on is obviously renewable energy, shifting toward more solar, wind, biofuels as well. That all contributes to a lower carbon footprint, given the energy mix of those sources of energy.
And then I would say that finally other things that are happening is just overall human behaviour and the change of that. Whether that’s consuming less cattle, which is actually five times more carbon intensive than say poultry, or flying less or reusing items. These are all little things on the margin, but they all add up because all of this contributes to the carbon footprint globally. And so, overall these are just a lot of the things that not just only energy companies and other companies are doing, but individuals as well, to combat carbon emissions globally.
In terms of leading the carbon initiative and how it’s affecting companies’ bottom lines… There’s a lot of things. Companies for the most part have to spend upfront capital and money to make the transition. So we’re seeing companies today actually make certain investments in preparing for a new greener energy future. Companies in Canada, we’ve seen this such as Suncor, which has invested in electric vehicle charging stations throughout their retail network in addition to wind farms, is combating that challenge head on by making those investments in renewables. We’ve also seen globally, companies such as BP, or British Petroleum, effectively reconstruct the entire company more to a cleaner future and have ambitious targets of net zero carbon by 2050. That’s going to be combated with a combination of alternative fuels, carbon sequestering, and just limiting the carbon footprint overall.
And so the bottom line here for companies is that upfront count backs is required. However, the benefit is going to be in the long term. A lot of the alternative energy sources, their cost of energy or a levelized cost of energy is now competitive with traditional fields of energy. It’s a function of spending money upfront right now in terms of benefits in the long term. And that’s important too, because the terminal value or long term viability of say oil and natural gas is somewhat in question because the growth is going to be impacted in the long term. By that, we define that in 2040 or ’50. So, it’s important that companies start thinking about the transition now, as opposed to being reactive in the very long term.