The antitrust threat to climate action

Read my lips: no new coal. That’s what the UN’s Race to Zero, an accrediting body for net zero pledges, is telling members in its new rules published last month.

A senior UN climate official, Nigel Topping, told Simon yesterday that industry “net zero” groups — including insurers, banks and asset managers — would lose their affiliation with Race to Zero if they failed to impose exclusion rules on new thermal coal projects. 

But it appears both competition regulators and the bevy of financial sector alliances formed in the build-up to COP26 are struggling to keep up.

We asked Renaud Guidée, chair of the Net-Zero Insurance Alliance and head of risk at the French insurer AXA, why the group of 28 does not require its members to stop underwriting new thermal coal projects. Guidée said the group had been informed by lawyers that this sort of co-ordinated industry action could be deemed illegal by competition authorities.

The tension around this subject will add to concern about the limits to what voluntary corporate initiatives can achieve, in the absence of more ambitious action from governments and regulators.

Does the NZIA’s position reflect a lack of ambition from insurers and the wider financial industry — or an outdated antitrust framework that is impeding industry co-operation to tackle climate change? Let us know your thoughts at moralmoneyreply@ft.com.

Also today, Tamami has a piece on the ambitions of China’s emissions trading scheme, by some measures the largest in the world. Good luck avoiding the heat that has continued to sweep much of the world this week. We’ll see you on Monday. (Kenza Bryan)

Insurer group defying net zero rules blames antitrust law 

The Net-Zero Insurance Alliance is steering away from fossil fuel exclusion rules for its members, in apparent contravention of new rules issued by its accreditation body.

The UN’s Race to Zero, a net zero policeman of sorts, has published tough new criteria stating that from June 2023: “Corporations and investors must restrict the development, financing and facilitation of new fossil fuel assets, which includes no new coal projects.”

Race to Zero accredits members through “partner initiatives” like the NZIA, which includes major insurers such as Axa, Alliance, Aviva and Munich Re. Like similar initiatives in the asset management and banking sectors, the NZIA demands that members commit to achieving net zero emissions by 2050, along with other more detailed requirements.

In an interview with Moral Money, the NZIA’s chair Renaud Guidée said he had no plans to require members to exclude coverage of specific sorts of project, arguing that insurers should instead engage with energy companies and push them to decarbonise.

Guidée’s response, that this sort of coordinated industry action could fall foul of competition authorities, is based on unpublished legal advice from law firms including Norton Rose Fullbright which, alongside its work for many other business sectors, also has a large oil and gas legal practice. 

The former Goldman Sachs banker and French finance ministry official added: “I’m not sure that cutting the resources that fund schools, hospitals — and if you get closer to the energy sector, some resources that are actively being redeployed into building and scaling up the renewable capacity — would be a good thing.”

Despite Guidée’s concerns about the legal implications of concerted action by an industry-specific grouping, several leading insurers — including Axa — have already committed to exclusions on new coal projects through the Net-Zero Asset Owner Alliance. Other members of that group include leading insurance companies Aviva, Zurich and Munich Re, as well as several large pension funds and wealth managers.

Guidée’s legal explanation received short shrift from Nigel Topping, who leads Race to Zero as one of the UN’s two high-level climate champions. “That sounds very surprising to me,” Topping told Moral Money, “given the extent of industrial collaboration we are seeing in sector after sector as part of Race to Zero”.

He added that, if industry alliances such as the NZIA do not require members to rule out coverage of new thermal coal projects, they could lose their Race to Zero affiliation. “Initiatives that don’t meet the updated criteria on phasing out thermal coal will cease to be part of Race to Zero.”

The NZIA said that while all its members were committed to taking necessary steps to reaching their net zero goals — and could apply exclusions to do so — the alliance did not have the legal power to be prescriptive about each of these goals.

Butch Bacani, who leads the UN Environment Programme’s Principles for Sustainable Insurance Initiative, noted in defence of the NZIA’s position that the financial penalties for competition law breaches can be severe, with potential fines of up to 10 per cent of turnover in the EU.

Some lawyers have suggested that the clear social benefit of cutting emissions should prompt competition authorities to wave through concerted industry action on that front.

The European Commission’s Directorate-General for Competition wrote to the Insure Our Future campaign in May saying it was committed to ensuring competition law does not stand in the way of genuine sustainability initiatives ultimately benefiting consumers.

But Bacani notes that the insurance industry is still finding its feet in climate discussions. There has been “no work on insurance decarbonisation in the past”, he said, partly because of a cultural perception in the industry that its role is to pay out in the event of natural catastrophes — rather than to help prevent them.

Guidée’s Axa itself has tighter exclusion policies than most peers, according to Reclaim Finance’s Oil and Gas Policy Tracker, including a bar on coverage of new thermal coal projects.

It will still, however, insure new oil and gas projects for companies it deems to have a credible transition plan. This type of policy is a “contradiction in terms”, argues Peter Bosshard of Insure Our Future, which is pushing insurance companies to take a far more restrictive approach to its coverage of fossil fuel producers. “Transition plans are not credible if companies are expanding their production,” he said.

This week’s Oxford Sustainable Finance Summit closed yesterday with a debate on corporate net zero pledges. One side argued that these would do more harm than good — serving as a dangerous distraction from the need for ambitious government action and tough new regulations. They lost, but still received a large minority of audience votes.

The controversy over the NZIA’s lack of exclusion rules may add to this scepticism. But it’s also worth listening to a point made in the debate hall last night by Alex Michie, who runs GFANZ, the umbrella group for the industry alliances. Initiatives such as these, he said, “are stepping into a space that public policy — governments — should be filling. Public policy has not filled it, and it hasn’t filled it for decades.” (Kenza Bryan and Simon Mundy)

China’s carbon trading scheme, one year in

It has been a year since China kicked off its first national carbon exchange as a vehicle to reach its goal of hitting peak emissions by 2030 and carbon neutrality by 2060.

Launched on July 16 last year, the world’s largest emissions trading scheme (ETS) currently represents more than 2,000 companies in the power generation sector. Together, they emit approximately 4.5bn tonnes of CO₂. 

The carbon price rose slightly over the year — from Rmb51.23 ($7.57) per tonne on the first day of trading to the current level of Rmb58 per tonne. That’s less than a tenth of the price seen in the EU carbon trading scheme, where permits now trade at more than €80 per tonne.

The modest growth was expected as the Chinese ETS is still oversupplied by generous allowances, explained Matthew Gray, analyst at UK-based climate research group TransitionZero. Gray said he viewed the Chinese ETS’ first year as a trial for “market participants to learn more about carbon risk and how to trade carbon effectively”. While he considered the last year a success, he has concerns about the likely pace of improvement.

Originally, China’s government planned to expand the ETS coverage beyond the power generation sector to include sectors such as steel and cement. State media have reported that the government is still planning to add another seven high-emission industries to the exchange by 2025.

But Gray didn’t expect this change to happen any time soon. Amid the energy crisis, he said, the government’s focus had shifted to energy security. And while it has not given up altogether on its green agenda, he added, its focus had shifted towards more direct intervention — such as investing in solar and wind power projects — rather than relying on a carbon price to deliver decarbonisation.

Tim Buckley, director of Sydney-based think-tank Climate Energy Finance, also perceived a shift in emphasis, with the carbon market mechanism moving down the strategic agenda. China sees the climate change challenge as a technology race, Buckley says, and the country’s big aim is “to lead the world on zero emissions industries of the future”, rather than using the ETS system to tackle emissions. (Tamami Shimizuishi, Nikkei)

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