Academics fire carbon ‘arbitrage’ warning

“Bacon, chicken wings and steak with net zero emissions. It’s possible.” This is one of the claims that the National Advertising Review Board in the US has recommended Brazilian meatpacking giant JBS stop using amid concerns that it has been overstating its climate credentials.

Meanwhile, in the United Kingdom, the Financial Conduct Authority wrote to a handful of top UK, US and European bank executives yesterday to warn them that slapping a “sustainability-linked” label on loans is not enough to avoid accusations of “greenwashing” and “conflicts of interest”.

This type of intervention by regulators is increasingly common. So now that the word ESG has fallen out of fashion, and once-glamorous expressions like “net zero” and “sustainable” are increasingly risky too, are numbers all that marketing departments have left?

Here too, the going could soon become tricky. Below, I report on hard-hitting revelations by academics at King’s College London on the potential for the Greenhouse Gas Protocol (GHG) — the bedrock of emissions accounting around the world — to be gamed. Companies could give a picture of their carbon footprint that is nearly seven times rosier than more conservative estimates, they found, without actually breaking any rules.

Also today, read Patrick’s piece on how a nickel miner’s listing could be a win-win for Tanzania and Wall Street. (Kenza Bryan)

Carbon counting can easily be gamed, paper finds

The Greenhouse Gas Protocol (GHG), a carbon-counting tool dreamt up in the 1990s, underpins almost every climate disclosure in the world.

But this widely accepted sustainability data system has been built on shaky foundations, according to a research paper written by academics at King’s Business School in London and shared with Moral Money.

Companies can “game” the system to appear to pollute less than they do, a rose-tinted picture which could in turn artificially inflate their share prices, it found.

And the potential for arbitrage is significant: using the most optimistic method available under the GHG could result in a carbon footprint between 4.6 and 6.7 times smaller than the most pessimistic method offered by the system.

“We’re building a castle on sand”, said one of the report co-authors, Marc Lepere, sustainability lead at King’s Business School in London and co-founder of a carbon accounting start-up.

“At its most basic, the system creates opportunities to cheat,” he told Moral Money.

Layer upon layer of government policy, including for example the European Union’s Emissions Trading System, has been built on the assumption that carbon emission disclosures are more or less comparable and accurate. 

But one of the ways wiggle room is introduced is through discrepancies in a handful of widely used “emissions factor” data sets, which give a rough idea of how much carbon is emitted as a result of each unit of output depending on geography and industry. 

Basing calculations on one of these data sets, maintained by the United Kingdom’s Department for Environment, Food and Rural Areas, gives a carbon footprint 10 per cent lower on average than using the one by the Environmental Protection Agency in the US.

On top of this, the freedom to choose between accounting methods, for example based on a company’s expenditure or average output (much like how GDP is calculated), can also lead to more discrepancies. 

One of the three companies whose anonymised emissions and output data the academics looked at was a small fridge manufacturer based in the UK. Their estimates of its yearly emissions ranged from 610 tonnes of carbon or equivalent gases to 1,300 tonnes, depending on the techniques used.

And while one might assume that most companies would want to err on the lower side of emissions, others might have reason to inflate them.

This includes companies who sell both carbon accounting services and offsets — which compensate for the release of emissions by making a cut or saving of carbon dioxide from the atmosphere — who could be tempted to choose the higher emitting metrics for their clients in order to sell them more offsets.

All of this could have an impact on investors. Previous research, including by the National Bureau of Economic Research, has found evidence that companies’ share prices fall when they disclose higher emissions.

Based on this logic, the King’s academics predict (albeit using a very limited data set) that if companies globally switched from using the UK emission factors to the US ones, their share price could plummet by 1.9 per cent on average. (Kenza Bryan)

Electric vehicle craze drives investment in clean nickel in Africa

During her trip to Tanzania earlier this year, vice-president Kamala Harris applauded a nickel mining business in the country that she said would deliver battery metal to the US as soon as 2026. The project combines “low-emission technology and high labour standards,” she said.

That nickel company, Lifezone Metals, is poised to go public on the New York Stock Exchange, highlighting how cleantech businesses are increasingly beloved by Wall Street. Investors approved the stock listing on Thursday.

Lifezone is developing the Kabanga mine located in north-west Tanzania, close to the Burundi border. The area comprises one of the largest undeveloped greenfield nickel sulphide deposits in the world, according to consultancy Wood Mackenzie.

The company believes Kabanga has relatively high-grade nickel that could make it one of the cleanest mining projects in the world. Refining can be done in Tanzania, Lifezone has said, which would reduce transportation emissions. Lifezone has also received a $90mn investment from mining giant BHP.

Lifezone’s NYSE debut, via a blank-cheque company, shows Wall Street believes there is money to be made in cleantech and that it is not a passing fad, said John Dowd, chief executive of GoGreen Investments, which is taking Lifezone public.

“The GoGreen name was an intentional double entendre,” Dowd told me. Going green means lowering carbon emissions, but it also means seeing green in your investment portfolio (red is associated with losing money), he said.

Amid concerns that African countries are not profiting from the batteries boom, the investment has also been structured to help Tanzania benefit. The Tanzanian government owns 16 per cent of the Kabanga project and will also generate revenue from taxes and royalties.

The Kabanga mine had historically been passed over, but electric vehicle batteries ignited demand for nickel, cobalt and lithium. The Biden administration’s accolades for Lifezone and its clean qualities underscores that it is aware of the “need to manage the unintended consequences of the EV revolution,” Dowd said.

The enthusiasm for the project from the highest levels of the Biden administration “was a huge surprise,” Dowd said. “I did not expect that.” (Patrick Temple-West)

Smart Read

Are you headed to a beach this summer? Or better yet, are you already “working from home” from a beach? Thanks to global warming, it is getting too hot for beach holidays — at least during summer months, writes Simon Kuper. These changes will have dramatic consequences for the tourism industry, he says. Read on here.