Energy Transition Impact on Capital Markets with Carbon Tracker’s Rob Schuwerk

Path to Zero
Path to Zero
4.04 - Energy Transition Impact on Capital Markets with Carbon Tracker’s Rob Schuwerk
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How economic factors can affect climate change is the focus of this special episode of Path to Zero from Climate Week in New York City. Tucker welcomes Rob Schuwerk, North American Executive Director of Carbon Tracker, who was in New York to launch the first ever Global Registry of Fossil Fuels.

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Transcript

Tucker Perkins:
Our guest in this episode of Path to Zero is with a company that will be conducting several events here in New York and online during Climate Week, on the impact of the energy transition on capital markets. Robert Schuwerk is the North American Executive Director of Carbon Tracker, which is a financial think tank that looks at the risk and opportunity for investors on the path to a low carbon future. Rob, thanks for stopping by, and welcome to Path to Zero.

Robert Schuwerk:
Glad to be here.

Tucker Perkins:
Thanks. Look, I’m really fascinated by the way economic factors seem to be working into climate change, and certainly impacting them a little bit. Tell us more about Climate Tracker, and what role you play in the environmental movement?

Robert Schuwerk:
Sure. Well, at Carbon Tracker, I think I want going to take us back to what we did in 2010, which was to point out the fact that if you look at the integrated assessment models that look at climate change over time, and look at the amount of CO2 that we can burn to hit any target, 1.5 degrees, 2.5 degrees centigrade, the targets that are in the Paris Agreement, that yields a certain amount of fossil fuels that we can burn, and when we looked at the world’s supply of reserves, we realized there are far more reserves than we can safely burn.

Our work since then has looked at, okay, well, if that is the case, which fossil fuels are most exposed? And we’ve done that, not just by fuel, obviously, coal is the most at risk. We’ve already seen some of the impact of that on coal companies, but beyond that, which are the ones that we think are most likely to be in jeopardy? In our view, those are the highest costs to produce fossil fuels, whether it’s gas or oil. And so, a lot of our research and our analysis is putting that information out to the market. So, our role, just to get back to your question on this, is really to provide this translation of climate risk to financial risk, so that people beyond, let’s say, environmentalists, can come to understand and appreciate what their exposures are. So, one of our key audiences in this case, is investors.

Tucker Perkins:
One of the things that surprises me as I look at a bunch of the data sets are that most of the world organizations, whether they’re national to the United States or international, seem to continue to project flat, sometimes even growth in some of those dirtier carbon fuels like coal and oil. I mean, I know you don’t really play in that space as a economist, but do those projections seem to make sense with what you see?

Robert Schuwerk:
Well, I think it’s always important to understand the context for those projections, and I think that understanding that context, they’re fair and reasonable in many cases. So, for example, the UNFCCC has recently said, “We’re on path by 2030 to increase emissions 14%, from where we are today,” when what we need to do if we want to be on a path to the goals of the Paris Agreement, is have cut them by 45% by 2030. So, I think you’re seeing today a lot of that. In drivers of change, governments obviously have to do more, and I think that’s the key lesson that you can get from that kind of analysis, that’s looking really at the business as usual. The only bright spot I would say in that, is if you look at the learning curves and the declines in the cost of new carbon-free technologies, that offers the possibility that we can see an acceleration of decarbonization, not because anyone has invented or worked on climate policy, but because it’s just the cheaper, more efficient thing for anyone trying to produce energy to do.

Tucker Perkins:
Well said. I know you’re trained as an attorney, I think you practiced as an attorney, went to Yale, Assistant Attorney General for the State of New York.

Robert Schuwerk:
Yes.

Tucker Perkins:
Kind of weave us with your career and your interest, how you worked your way into Carbon Tracker?

Robert Schuwerk:
Sure. Well, so, I would go back even before I was at the Attorney General’s Office, and I was a litigator for a large firm here in New York, Paul, Weiss, Rifkind, Wharton & Garrison, and I came to the point when I realized that I wanted to do something that was more mission driven, and I thought about what are some of the most significant challenges the world faces today, where I thought my skills could be useful, and climate was the one that seemed most appealing to me. So, I went first to the New York Attorney General’s Office to work on environmental issues, including a range of things, [inaudible 00:05:05], [inaudible 00:05:06], bankruptcy, but also some on climate, and for personal reasons, needed to move back to my home state, Texas, where I live now, and at that point, decided to look for another option, and Carbon Tracker was there. So, it was kind of being in the right place at the right time.

Tucker Perkins:
So, Carbon Tracker is based in Austin?

Robert Schuwerk:
Well, I’m based in Austin, so I guess Carbon Tracker is by default, but our US office for our 501(c)(3) is based here in New York.

Tucker Perkins:
Great. So, we’re here at Climate Week. We’re in New York, of course. You got an important day today. You’re going to have the global release of the Global Registry of Fossil Fuels. Tell us what that’s about.

Robert Schuwerk:
Yeah, sure. So, the Global Registry of Fossil Fuels is what it says, in the sense that it’s an inventory of fossil fuel projects around the globe, coal, oil, and gas. You’re going to have information about reserves, production, and related emissions, both pre-combustion and post-combustion for these projects, all rolled up to country level. So, it’s really, it’s supposed to be first and foremost, a tool to give transparency into fossil fuel production, and a policy neutral one at that. So, we’re not trying to advocate any solution, we’re trying to give information to policymakers and others, so that they can propose how we should address the overhang of fossil fuels.

I should probably tell you why we created this thing. I think something very interesting, and you can go back and look at the Paris Agreement, which we all know is about climate change, it doesn’t mention really fossil fuels at all, at all, even though 75% of our emissions come from the combustion of fossil fuels. We have very much focused on the demand side of the equation over time, and that is not a problem per se, but it has been somewhat to the exclusion of looking at supply, and how we manage supply, so that we don’t overextend ourselves in terms of fossil fuel development. And the reason that we’re focused not just on the big picture, which is I think fairly well known, lots of information about the carbon budget, but we want to focus on field level, because that’s where licensing decisions are taken, project sanction decisions are taken, development decisions are taken. And so, we want to be able to have that information in the public domain so that not just policymakers, but civil society, and even investors, can use that information to build their own strategies around.

Tucker Perkins:
One of the things that I find, as you said, rarely do they mention fossil fuels, and if they do mention it, it’s that we must get rid of all fossil fuels. One of the things that we really have studied for almost five years now, and consistently look at the carbon intensity of the grid, the carbon intensity of vehicles on a full economic cycle, but one of the areas, it seems, I’m quick to say that all fossil fuels are not the same. Fuels aren’t binary, good or bad. Some are good and some are bad. Coal, oil, or wood, pretty dirty. Electricity that’s made from coal, oil, or wood, even dirtier. I think it seems to me that there is still a lack of awareness that low carbon fuels like natural gas, like propane, really have a bright future in the role of decarbonizing. Do you see it somewhat like that?

Robert Schuwerk:
Well, so I would say when we look at the numbers, and I mean, by the numbers here, I’m referring to what’s the available carbon budget to meet some of our goals? Just to give you an example of this, you could think about the IPCC, the International Panel on Climate Change numbers to reach the 1.5 degree centigrade target. There’s lots of investors and others out there that say that’s important target, to have just a 50% chance of that. In 2020, they said, “We’ve got about 500 gigatons more we can emit.” Then we had the pandemic, and lots of people didn’t go anywhere.

Fast forward to what we’ve actually used since those numbers were released, we’ve used about 20% of that budget over two and a half, three years. So, we’re down to about 400 gigatons of CO2, and what we’re going to need are zero carbon solutions. Now, those could come in a range of forms. They could come from things like carbon capture, and almost surely we’re going to end up having to have some level of carbon capture as time goes on, but the key is, we’ve got to get to zero carbon in an energy we use, whatever solutions we come up with.

Tucker Perkins:
You’re also a part of a… Carbon Tracker has Climate Action 100+.

Robert Schuwerk:
Yes.

Tucker Perkins:
Right? Tell us about what that is.

Robert Schuwerk:
Yeah. So, we provide data and research to the Climate Action 100+. That’s a consortia of investors, mostly institutional investors, that are asking companies to set targets on reducing their emissions and aligning their portfolios with the Paris Agreement, put in place governance measures that will sort of ensure that the companies are doing what they’re saying, and third is that they disclose to the markets what they’re doing, and how they’re doing. It’s about 50, last time I checked, 55 trillion in assets, under management. So, what you’re talking about is basically all of the major pension funds around the globe, and as well as a number of large asset managers involved in this. So, they are asking for these things. What they ask from us is that we help verify whether companies are on track or off track, either according to the company’s own targets, or according to what they’re doing vis-à-vis the Paris Agreement.

Tucker Perkins:
What’s next for Climate Tracker?

Robert Schuwerk:
Yeah, for Carbon Tracker, well, we have the launch of the Global Registry of Fossil Fuels, we have Carbon Tracker Day actually here in New York on Wednesday, where we’re going to be looking at stranded assets and stranded liabilities, so thinking about both ends of the spectrum, and I think as you see over the next year, year and a half, you’re going to see us expand into other sectors. So, we’ve focused heavily on coal, oil, and gas, we’ve focused on utilities, but now we want to tackle some of the sectors that are peripheral to that, whether it’s auto making steel, other things. And we also want to take a lot of the data that we have produced that can only be seen through our reports, and make it more accessible for others to use, because one of the things for us is at this point, I think some of the issues are very well understood, what people need are tools as to how they should start thinking about and managing their own investment decisions, which is our primary focus, around this issue of climate risk.

Tucker Perkins:
Great. Well, let’s have a little fun now. We like to just a little bit of fun every day.

Robert Schuwerk:
Sure.

Tucker Perkins:
So, we use a little magic on here. I’m going to hand you a magic wand, you get to use that magic wand to change one thing in the next year. So, those are the two requirements, only one thing, and it’s got to be soon, regarding climate change and sustainability overall. Rob, how would you use that wand?

Robert Schuwerk:
Well, climate-related risk affects us all, no matter our political persuasion. So, I would use the magic wand to depoliticize discussion on climate, so we can get to the place where we can have reasonable disagreements about what’s the best policy for us going forward? So, take the politics out, let’s get to the policy.

Tucker Perkins:
Yeah. Great use. I know you’re not really into policy, but you see it so often. How do you square developed nations’ carbon emissions, versus developing nations? How do you view that? How do we get past that?

Robert Schuwerk:
Yeah, I think that’s both a legitimate, difficult issue and historically has been one, but I think also is one that will increasingly become a red herring, and I kind of mean red herring in a soft way. What I mean is that I think technology is going to take a big chunk out of that problem. So, for example, we’ll have a report coming out on green hydrogen in the next couple of weeks, and I don’t want to get too many spoilers in here on that, but I will say if you look at green hydrogen and its potential, because green hydrogen is going to use a fair amount of water.

So, you’ve got that constraint. You don’t want to be using green hydrogen in places you already have water constraints. But if you look at places where green hydrogen could be useful, it’s in the Global South, okay? It’s in places like Central Africa, in places like Latin America. So, there are going to be opportunities. There are already opportunities for solar, and other things in places like that. So, I think that what we need to really do, and part of our work on the utility side, is really pointing this out in developing nations, that there’s actually a lot of opportunity here. So, there’s no reason to be going back to using coal or gas.

Tucker Perkins:
One more tradition we have as a way to thank you is we plant a tree in a national forest, in recognition of your time here, and to thank you for your time. Now, I know you’re a Texan, you spend a lot of time in New York, pretty well traveled. Anywhere a favorite national forest for you?

Robert Schuwerk:
Well, I’m going to home state it, and I’m going to say Big Bend.

Tucker Perkins:
Excellent.

Robert Schuwerk:
So, yeah.

Tucker Perkins:
Excellent choice.

Robert Schuwerk:
So, yeah, and if I could pick a tree, I’d probably say maybe the Retama, or the Palo Verde.

Tucker Perkins:
Okay. We’ll go to work on that. That’s awesome. What a great choice. Rob, I’m sure you’ve given our listeners a lot to think about. Thanks for taking time today to stop by and talk with us during Climate Week. Thanks.

Robert Schuwerk:
Thank you. Appreciate the time.