Opec cartel’s lesson for biodiversity

Receive free Environment updates

We’ll send you a myFT Daily Digest email rounding up the latest Environment news every morning.

It’s been 55 years since Robert F Kennedy’s famous speech attacking the cult of gross national product, which “counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl” — but never the value of that natural wonder itself.

Finally, as a new report published yesterday highlights, serious momentum is growing behind efforts to account properly for the value of nature in the global economic system. As we discuss below, this is a high-stakes game that could, if mismanaged, result in a damp squib — or even damaging consequences for some of the world’s poorest communities. But given the clear and present danger to rainforests and other vital ecosystems, and the potential impact of smartly designed nature markets policy, this is clearly an area worth serious attention.

Also today, Patrick looks at what one eye-catching share price pop tells us about the state of the US solar sector. Have a great weekend. — Simon Mundy

The risks and rewards of nature markets

Looking at the slowing rate of deforestation in the Brazilian Amazon, it’s tempting to feel encouraged.

Following the environmental carnage wrought during Jair Bolsonaro’s four-year presidency, there’s been a notable improvement since Luiz Inácio Lula da Silva returned to power in January. The deforestation rate in the first half of this year was 33 per cent lower than in the same period last year.

But it’s worth remembering that — given scientists’ warnings of a looming, catastrophic “tipping point” for the Amazon — even this reduced level of deforestation still presents a very serious threat. So this week’s summit of Amazonian nations in Belém was a small but important step towards halting the destruction. And a finance-focused event yesterday in the Brazilian city, hosted by non-profit groups including NatureFinance, offered some useful ideas on how to keep the momentum going.

Yesterday’s event centred on a new report from the Taskforce on Nature Markets, which was set up last year to study the pricing of nature in the global economy. The report from the body — whose members range from ex-US treasury secretary Hank Paulson to Unctad secretary-general Rebeca Grynspan and Brazilian indigenous leader Almir Narayamoga Suruí — is a valuable read on a subject that’s getting increasingly high-profile.

The nascent space of biodiversity credits — which companies or individuals can buy to channel funding to nature protection projects — is central to this debate. The report warns that lessons must be learned from the troubled performance of the more established carbon credit market, which has been dogged by concerns about exaggerated claims and inadequate transparency.

Especially crucial will be avoiding the steep “price gradient” seen in the voluntary carbon market, Simon Zadek, executive director of NatureFinance and co-author of the report, told me. This refers to the widespread phenomenon whereby local communities receive only a small fraction of the money that end buyers pay for carbon credits, with the remainder taken by various middlemen.

One thing that could help address that problem — in both carbon and biodiversity credits — is greater co-ordination among nature-rich countries in the global south, with something akin to a cartel like Opec. Together, nations could push for higher prices for biodiversity and carbon credits. “Sellers’ clubs that set fair prices in return for guarantees of high integrity ecosystem services would make even more sense in the context of a catastrophic climate scenario,” the report argues.

As an early step towards such a sellers’ club, Zadek pointed to a formal partnership signed last November between Brazil, Indonesia and the Democratic Republic of Congo, in which the forest-rich nations vowed to work together to secure funds for nature preservation.

As the report highlights, markets in nature have always existed in one form or another — whether for land rights or foodstuffs or lumber. More sophisticated efforts to price nature could prove a powerful means of protecting it — but it’s worth noting the risks that could come with a ham-fisted approach. As the report notes, badly designed nature markets could end up squeezing capital flows or food supplies in developing countries.

“The rise of nature markets does not automatically guarantee better outcomes,” the authors warn. “Indeed, left simply to evolve in their own way they could even make things worse.” (Simon Mundy)

A ray of light in a stormy solar market

We wrote last month about the surging share prices for solar companies Sunrun and Sunnova as the Biden administration loosened restrictions on panels imported from Xinjiang.

But after an initial euphoria, the rally fizzled and both companies are now down for the year.

Now solar investors are tilting towards infrastructure and companies that make components other than panels. For utility-size solar farms built over uneven ground, solar panels need to be gradually rotated as the sun passes over from dawn to dusk. Installing massive solar projects and maximising their exposure to the sun is a big business for the companies that offer sunlight-tracking technologies. 

On Wednesday, Array Technologies, which makes solar panel tracking components, saw its shares jump 24 per cent for the day after reporting strong earnings. The company improved its margins and cash flows, but the stock is also set to benefit from goodies in the Inflation Reduction Act. The Treasury Department is finishing work on a tax benefit for companies that rely on solar components from domestic manufacturers — rather than foreign firms.

“Bigger picture, the IRA is very positive for domestic utility scale projects,” said Sean Milligan, a senior equity research analyst at Janney Montgomery Scott.

The solar sector is also benefiting from the booming interest in artificial intelligence this year. Big technology companies working on large language models have prioritised a low carbon footprint. As the AI arms race pushes Microsoft, Alphabet and others to seek more electricity for data centres, they are turning to utility solar providers for juice, said Jordan Levy, an analyst at Truist. That’s why companies like Array “are not slowing down”, he said.

The benefits of the IRA for renewable energy have been well publicised. When combined with clean energy demands from artificial intelligence, the prospects look bright for solar stocks. With the wind sector in trouble this year, the healthy prospects for US solar are good news for the climate. (Patrick Temple-West)

Smart Read

Kenya’s president William Ruto has laid out a tough task. He wants to upend the dominance of the World Bank and the IMF with a “green bank” that would channel money towards debt relief and climate change mitigation for developing countries. Don’t miss his enlightening conversation with Kenza and FT climate correspondent Attracta Mooney.