Dog Days of August?

In the soupy August heat of Washington DC, when Capitol Hill is usually shuttered, it’s surreal that after 18 months of deadlock, the United States is on the cusp of enacting an historic climate protection bill. Approved by the Senate last week in a party-line vote, the Inflation Reduction Act (IRA) is expected to be approved by the House this week and swiftly be signed into law by President Biden. The bill will pour $369 billion in subsidies and tax credits into electric vehicles, renewable energy, carbon capture and storage, and more. All told, the bill will reduce US greenhouse gas emissions by 40% - bringing the Paris Accord goals into sight and making good on many of Biden’s promises. 

Despite being substantially scaled back from the original multi-trillion ‘Build Back Better Bill’, climate advocates across the US are rejoicing at this monumental step on America’s journey toward net zero and its reemergence as a climate leader on the world stage. A long-time champion of climate action, Environmental Defense Fund Chief Fred Krupp said, “This has been decades in the making, and it will reshape the decades ahead,” 

We summarized our top 10 takeaways for businesses and financial institutions from the IRA in Fast Company this week. For one, the bill will help high-carbon industries such as real estate and shipping to de-carbonize through grants and tax deductions. It will also provide sweeping loans and grants for climate-tech, renewable energy and carbon capture facilities - making green energy cheaper for all Americans.

Follow the Money

Misappropriating the Watergate-era phrase ‘follow the money’ - a few articles this week identified the winners and losers for $485 billion of new spending and $790 billion of revenue in the bill. The below graph from Protocol highlights the winners for funding - such as renewable electricity, the built environment and transportation - which makes sense as these are the most carbon-intensive sectors. This table provides a granular breakdown of all the proposed climate investments. 

The other winners of the bill include the nuclear industry, which stands to benefit from a $30 billion production tax credit for nuclear power providersGreen hydrogen (created by wind-and-solar power) will also get a boost in the IRA by way of a tax credit.

In a massive win for environmental justice, $60 billion was invested in an array of projects to help the most disadvantaged and under-served communities in America. 

To no one's surprise, the two Democrats who held up the bill for over a year, Senators Manchin and Sinema, won allowances for their home states: a permit to complete a fossil fuel pipeline in West Virginia and $4 billion in drought relief for Arizona. 

You Can’t Please Everyone

A few environmental groups objected to the concessions made for fossil fuels, which include new oil and gas drilling leases. “Solving the climate crisis requires eliminating fossil fuels, and the Inflation Reduction Act simply does not do this,” said Steven Feit, senior attorney at the Center for International Environmental Law. A cost-benefit analysis from The Climate Justice Alliance likewise claims the negatives of the bill outweigh its positives, claiming it relies too heavily on unproven technologies like carbon capture and hydrogen, which are both there to appease the oil and gas industry.

According to think tank Energy Innovation, the bill will subtract at least 24 tons of carbon emissions for each ton of emissions that the oil and gas provision adds. The old adage - ‘don’t let the perfect be the enemy of the good’ comes to mind. After most people had written-off Biden’s climate agenda, the IRA is a major win for the environment and the economy and it puts the US on track to meet its international climate commitments. 

Climate Tech Blastoff

Even without the IRA stimulus, a recent report projected that the global climate tech market will grow at a compound annual growth rate (CAGR) of 24% over the next decade, reaching a valuation of $17 billion by the end of 2022. The market has grown at a CAGR of around 18% over the past 5 years attributable to climate regulations and private sector demand for climate tech.

Investors think the passage of the Inflation Reduction Act will further accelerate the industry’s growth. Direct investments in climate tech–like $10 billion for cleantech manufacturing facilities and $2 billion for energy research–will reduce the ‘green premium’ and support risky, capital-intensive climate tech projects that VCs won’t fund. “I think this bill has the potential to bring more technologies out of labs, universities, and incubators, and get them ready for private sector funding,” noted Dan Goldman, managing director at Clean Energy Ventures about the IRA’s impact on the industry.

Climate tech’s coming boom will have downstream impacts on industries like precious metals, with lithium and nickel demand surging amidst the electric vehicle race. In a prominent example of the industry’s revival, metals producers in Australia’s gold rush towns are being courted by the EV industry to switch over to mine lithium, nickel, manganese, and cobalt for use in batteries. Australia already provides about 75% of the lithium needed for Tesla and demand is soaring as mainstream manufacturers enter the EV race.

Climate change is supercharging infectious diseases

A new paper found that over half of all human infectious diseases have been aggravated by climate change impacts. The study, published in Nature Climate Change this week, shows how climate hazards like warming temperatures, drought, wildfires, extreme precipitation, and sea-level rise have accelerated the spread of 218 of the total 375 documented infectious diseases. Rising temperatures and extreme precipitation allows mosquitoes, birds, and other disease vectors to come into contact with more people. 

Flooding in South Korea kills 9 

Severe flooding continued this week when South Korea received the heaviest rainfall recorded in 80 years. The flooding claimed at least 9 lives as more than 18 inches of rain were recorded from Monday to Tuesday evening. The water turned streets into rivers and left subway stations underwater. 

Some described it like a scene from the movie ‘Parasite’ as low-income housing districts were devastated by the torrential rainSouth Korean President Yoon Suk-Yeol visited an affected basement apartment, telling his nation: “We must expect these kind of weather events to become more frequent in the future and be prepared with fundamental measures.” Korean Forecaster Ban Ki-Song said this is no coincidence and climate change is the only explanation to such torrential rainfall.” 

Pressure Builds on the EU to Align with International Standards

As the consultation period for the EU’s European Sustainability Reporting Standards (ESRS) closed, a common theme emerged: lack of consistency with international standards - in particular the climate standard from International Sustainability Standards Board (ISSB). Even a peer organization in the EU government - the European Securities and Markets Authority's (ESMA) - urged greater harmonization. Their detailed comment letter stated: “while both EFRAG and the ISSB built on the TCFD structure, EFRAG has decided to depart from it and develop a more complex architecture.” Likewise, the Net-Zero Asset Owner Alliance, a group of 74 leading investors with $10.6 trillion in combined assets, highlighted “requirements overlapping with the ISSB standards (to ensure full interoperability and maximum alignment)” as a critical issue for revision. The Institutional Investors Group on Climate Change said, “it will be important to ensure EFRAG’s standards do not unnecessarily depart from international sustainability reporting standards.”

Missed last week's Sustainability Decoded Newsletter? Check it out now and stay in the know: August 5th, 2022

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