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Biden’s climate agenda goes global

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One thing to start: The UK wants to build a nuclear fusion project, pinning at least some decarbonisation hopes on technology that “has been touted since the 1950s as the answer to the world’s energy needs, without delivering a single watt of useful power”.

Opec+ was supposed to have met and decided by now whether to prolong its existing oil supply cuts. But, in a sign that the deal isn’t as straightforward as expected, the meeting was delayed. The news will arrive later today.

The FT this week hosted a summit on the energy transition, exploring the obstacles and opportunities faced by companies and countries alike as the world shifts towards cleaner energy. Mark Carney used the meeting to throw his weight behind proposals to create a $100bn carbon-offset market.

ES today picks up on some other conversations from the summit. Our first item is on the impact of Joe Biden’s energy and climate policy from an international perspective.

Our second takes in comments from Francesco La Camera, head of the International Renewable Energy Agency, including an intriguing idea of how natural gas can play a role . . . in demolishing its own market.

Thanks for reading. Please get in touch at energy.source@ft.com. You can sign up for the newsletter here. — Myles

The global effect of Biden energy policy

Joe Biden — as you may have heard by now — is placing climate change at the heart of his energy policy. Alongside the virus, economic recovery and racial equality, it will be one of his top four priorities in office.

But climate change requires global action. The US produces 15 per cent of the world’s energy-related emissions — lots, but that still leaves 85 per cent.

Mr Biden has vowed to “rally the rest of the world to meet the threat”. And his actions so far suggest he is serious, according to Jason Bordoff, former energy adviser to the Obama White House and founding director of the Center on Global Energy Policy at Columbia University.

Start with the appointment last week of John Kerry to the new role of climate envoy. The former secretary of state, already a powerful figure, will hold cabinet rank and sit on the National Security Council — meaning he will have significant influence.

“That, I think, signals that this is about way more than just rejoining the Paris agreement — as important as that is,” Mr Bordoff told the FT’s Energy Transition Strategies Summit. “We are going to see all the tools of foreign policy brought to bear on advancing an ambitious climate agenda.”

John Kerry’s appointment as climate envoy signals the US means business. © REUTERS

So what might a Biden international energy agenda look like?

Rejoining Paris: Donald Trump pulled out of the 2016 international climate deal, insisting it placed “draconian” burdens on the US, while letting other countries off lightly. Mr Biden has said he will set the process in motion to rejoin it on the first day of his presidency. This could probably be implemented within a month, but that would only be “step one”, said Mr Bordoff. 

Policing Paris: Getting back on the wagon would not in and of itself be a game-changer. The US needs to take a leading role making sure the goals of the deal are actually implemented, said Mr Bordoff, ensuring slackers commit to implementation strategies to keep them on track. And American heft in trade could be used to keep its neighbours honest, by adjusting terms depending on carbon commitments.

Multilateral finance: Mr Biden has vowed to hold China accountable for coal investments through its Belt and Road programme.

“How do you do that? You need to put a package on the table for emerging market countries that have significant needs to grow their energy production domestically, help them do that in economically viable, affordable but lower-carbon ways. And you can use multilateral finance co-operation to do that,” Mr Bordoff said.

Development assistance: As poorer countries emerge from the coronavirus crisis in search of debt relief, commitments on climate change could be imposed as conditions for aid.

Security policy: “We’re going to increasingly see climate change interwoven throughout many aspects of US national security and foreign policy,” said Mr Bordoff. Everything from stopping the desertification that might increase support for Boko Haram in north Africa to nuclear non-proliferation comes into play, he said.

As America emerges from its period of international isolation under Mr Trump, Mr Biden has vowed that “America is back, ready to lead the world, not retreat from it”.

Critically, on climate — and energy — his new envoy agrees.

“At the global meeting in Glasgow one year from now, all nations must raise ambition together, or we will all fail together, and failure is not an option,” said Mr Kerry of the 2021 United Nations Climate Change Conference. (Myles McCormick)

Irena boss talks Covid, coal and carbon

A global energy transition is “already in place and unstoppable” but the pandemic is helping the “old energy world” hold on to its place, according to the head of the International Renewable Energy Agency.

Among the highlights of my conversation with Francesco La Camera, an Italian politician with 30 years in climate and sustainable development politics, who is now director-general of the Abu Dhabi-based Irena:

  • Coal and oil demand “should already have peaked” by now and natural gas would need to do so by 2025, if the world is to meet its net zero targets.

  • Falling renewable energy costs are going to wipe out more coal next year. Clean energy would operate at a lower price than 1,200GW of coal fired power capacity globally in 2021.

  • Carbon capture and storage (CCS) would have a marginal role in the coming years, perhaps as an enabler for blue hydrogen (that is, hydrogen created from natural gas). But CCUS, which would allow also for “utilisation” of the carbon? Not so much. “Its contribution in reduction of emissions is not worth the investment.”

Another intriguing point from Mr La Camera was natural gas’s role in its own demise. As the world shifts from fossil fuels for the bulk of its final energy consumption to clean energy, natural gas will linger on as a source for blue hydrogen. This will help widen the market for hydrogen in general, in turn opening the market for green hydrogen — to replace natural gas.

Mr La Camera was pleased with net zero commitments from a host of countries in recent weeks — he mentioned China, South Korea, Japan, South Africa, the EU and Chile. But some countries were still wedded to “older energy”, he said, referring to some pandemic stimulus spending on fossil fuels.

The Energy Policy Tracker, which keeps a running total of where countries have been investing energy money since the pandemic started, reckons G20 countries have spent at least $235bn supporting fossil fuels — but only $151bn on clean energy.

Mr La Camera cautioned investors not to back producers ploughing capital into assets that would end up stranded, or producers pinning hopes on technologies like CCS in the hope they would prolong the life of existing fossil fuel installations.

The world was passing from “a centralised system to a more decentralised system that is based on the wish of the consumer, founded on a more interconnected and flexible world”, he said. “So, delaying this movement to this new era of the energy system is always a mistake.” (Derek Brower)

Data Drill

Energy storage capacity in the US is starting to rocket.

There were 476MW deployed in the third quarter of this year, according to data compiled by Wood Mackenzie and the US Energy Storage Association. That is an increase of more than 240 per cent over the previous quarter.

The pick-up was driven by front-of-the-meter installations, mainly in California, and is a sign of things to come. “The curtain has only just risen on Act One,” said Dan Finn-Foley, head of energy storage at Wood Mac.

Column chart of Deployments by quarter (MW) showing Energy storage is taking off in the US

Power Points

  • The US’s first commercial scale offshore wind farm has delayed an application for federal approval until Joe Biden takes office.

  • Denmark wants wind developer Orsted to pay more tax on profits earned abroad. Lex weighs in.

  • Boris Johnson is drawing up plans for a 50 per cent increase in the rate of decarbonisation of the UK economy over the next decade.

Endnote

Frans Timmermans, the European Commission executive vice-president in charge of green policy, spoke to the FT’s Brussels correspondent Mehreen Khan as part of the Energy Transitions Summit.

Here are the key points he made:

On reaching agreement on the EU’s 2030 Climate Target Plan (to cut emissions by 55 per cent by 2030 compared to 1990 levels):

“We’ve been talking to members over a couple of weeks. And all this points into the direction of member states, step by step moving towards embracing the minus 55 goal.”

“Europe, having had the lead on this, cannot stay behind. We should remain in the lead — and for that to happen we really need an agreement on this.”

On the need for a carbon border adjustment mechanism:

“We need to be well prepared for the eventuality where in certain sectors, international partners will not take the steps they need to take to conform with their engagements under the Paris Agreement.”

“And then we will have to avoid the risk of carbon leakage, avoid the risk of distorting competition. And for that we will need carbon border adjustment. But I would I would love not to need it.”

On emissions trading systems (ETS):

“I honestly believe that worldwide, there is going to be a move towards forms of ETS . . . I think ETS is arguably the best way of showing to industry and to society what the cost is of a huge carbon footprint — and also showing a pathway to reducing the carbon footprint.”

Energy Source is a twice-weekly energy newsletter from the Financial Times. Its editors are Derek Brower and Myles McCormick, with contributions from David Sheppard, Anjli Raval, Leslie Hook and Nathalie Thomas in London, and Gregory Meyer in New York.



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Copper hits record high with demand expected to rise sharply

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Copper prices hit a record high on Friday in the latest leg of a broad rally across commodity markets sparked by the reopening of major economies and booming demand for minerals needed for the green energy transition.

Copper, used in everything from electric vehicles to washing machines, rose as much as 1.2 per cent to $10,232 a tonne, surpassing its previous peak set in 2011 at the height of a previous commodities boom.

The price has more than doubled from its pandemic lows in March last year due to voracious demand from China, the biggest consumer of the metal, and also investors looking to bet on a big uptick in the global economy and protect their portfolios against potential for rising inflation.

Government stimulus packages and the shift towards electrification to meet the goals of the Paris agreement on climate change are expected to fuel further demand for the metal, which analysts and industry executives believe could hit $15,000 a tonne by 2025.

“Capacity utilisation rates of our customers are the highest in a decade and that’s before stimulus money both in Europe and the US has started to flow,” said Kostas Bintas, head of copper trading at Trafigura, one of the world’s biggest independent commodity traders. “That will be significant.”

The US and Europe were becoming significant factors in the consumption of copper for the first time in decades, he added. “Before, it’s effectively been a China-only story. That is changing fast.”

Concerns about the long-term supply of copper due to lack of investment by large miners has also pushed up prices. There are only a few large projects in a development, while most of the world’s easily produced copper has already been mined.

“The current pipeline of projects likely to start producing in the next few years represents only 2.3 per cent of forecast mine supply,” said Daniel Haynes, analyst at banking group ANZ. “This is well down on previous cycles, including 2010-13 when it reached 12 per cent.”

The upward march of other raw materials is showing no signs of abating. Steelmaking ingredient iron ore traded above $200 a tonne for the first time as China returned to work after the Labour Day holidays in early May. 

In spite of production cuts in Tangshan and Handan, two key steelmaking cities in China, analysts expect output to remain solid over the next couple of quarters. 

“Recent production cuts in Tangshan have boosted demand for higher-quality ore and prompted mills to build iron ore inventories as their margins are on the rise with steel supply being restricted,” said Erik Hedborg, a principal analyst at CRU Group.

“Iron ore producers are enjoying exceptionally high margins as around two-thirds of seaborne supply only require prices of $50 a tonne to break even.”

Elsewhere, tin on Thursday rose above $30,000 a tonne for the first time in a decade before easing. Tin is used to make solder — the substance that binds circuit boards and wiring — and is benefiting from strong demand from the electronics industry, which has been lifted by growing numbers of stay-at-home workers.

US wood prices continued to race higher ahead of the peak in the US homebuilding season in the summer with lumber futures rising to a record high above $1,600 per 1,000 board feet length, up from $330 this time last year.

Agricultural commodities also continued to rally as a result of a particularly dry season in Brazil, concerns about drought in the US and Chinese demand. Strong increases in food prices have started to affect global consumers. Corn rose to a more than eight-year high of $7.68 this week, while coffee has risen almost 10 per cent since the start of month, hitting a four-year high of $1.54 a pound this week.



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Wall Street stocks waver as investors await US jobs data

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Wall Street stock markets wavered, with tech losses dragging down some indices, but remained close to record highs ahead of US jobs data on Friday that could pile pressure on the Federal Reserve to rethink its ultra-supportive monetary policies.

The S&P 500 was up 0.2 per cent in the afternoon in New York, hovering slightly below its all-time high achieved late last month. The peak was reached following a long rally supported by the Fed and other central banks unleashing trillions of dollars into financial markets in pandemic emergency spending programmes.

The technology-heavy Nasdaq Composite, however, which is stacked with growth companies sensitive to changing interest rate expectations, was down 0.5 per cent by the afternoon in New York, the fifth straight losing session for the index.

The divergence of the two indices followed patterns from earlier this year, when investors sold out of growth companies over fears of rising rates and poured into more cyclical plays. That trade has been more muted recently but could be coming back, said Nick Frelinghuysen, a portfolio manager at Chilton Trust.

“It’s been a bit more ambiguous . . . in terms of what regime is leading this market higher, is it quality and growth or is it value and cyclicals?” Frelinghuysen said. “We’re in a little bit of a wait-and-see mode right now.”

The 10-year Treasury yield, which rose rapidly earlier this year amid inflation fears, declined 0.05 percentage points to 1.56 per cent on Thursday.

In Europe, the Stoxx 600 closed down 0.2 per cent, hovering just below its record high reached in mid-April.

With the US economy close to recovering losses incurred during coronavirus shutdowns, economists expect the US government to report on Friday that the nation’s employers created 1m new jobs in April. Investors will scrutinise the non-farm payrolls report for clues about possible next moves by the Fed, which has said it will continue with its $120bn a month of bond purchases until the labour market recovers.

Up to 1.5m jobs would “not be enough for the Fed to shift”, analysts at Standard Chartered said. “Between 1.5m and 2m, there is likely to be uncertainty on Fed perceptions.”

Central bankers worldwide had a strong “communications challenge” around the eventual withdrawal of emergency monetary support measures, said Roger Lee, head of UK equity strategy at Investec.

“If it is orderly, then you can expect a gentle continuation of this year’s stock market rotation” from lockdown beneficiaries such as technology shares into economically sensitive businesses such as oil producers and banks, Lee said. “If it is disorderly, it will be a case of ‘sell what you can’.”

On Thursday the Bank of England upgraded its growth forecasts for the UK economy but stopped short of following Canada in scaling back its asset purchases.

The BoE maintained the size of its quantitative easing programme at £895bn, while also keeping its main interest rate on hold at a record low of 0.1 per cent. The British central bank added that while its asset purchases “could now be slowed somewhat” after it became the dominant buyer of UK government debt last year, “this operational decision should not be interpreted as a change in the stance of monetary policy”.

Sterling slipped 0.1 per cent against the dollar to $1.389.

The dollar, as measured against a basket of trading partners’ currencies, weakened 0.4 per cent. The euro gained 0.4 per cent to $1.206.

Brent crude fell 1.1 per cent to $68.17 a barrel.



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Gensler raises concern about market influence of Citadel Securities

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Gary Gensler, new chair of the Securities and Exchange Commission, has expressed concern about the prominent role Citadel Securities and other big trading firms are playing in US equity markets, warning that “healthy competition” could be at risk.

In testimony released ahead of his appearance before the House financial services committee on Thursday, Gensler said he had directed his staff to look into whether policies were needed to deal with the small number of market makers that are taking a growing share of retail trading volume.

“One firm, Citadel Securities, has publicly stated that it executes about 47 per cent of all retail volume. In January, two firms executed more volume than all but one exchange, Nasdaq,” Gensler said.

“History and economics tell us that when markets are concentrated, those firms with the greatest market share tend to have the ability to profit from that concentration,” he said. “Market concentration can also lead to fragility, deter healthy competition, and limit innovation.”

Gensler is scheduled to appear at the third hearing into the explosive trading in GameStop and other so-called meme stocks in January.

Trading volumes in the US surged that month as retail investors flocked into markets, prompting brokers such as Robinhood to introduce trading restrictions that angered investors and drew the attention of lawmakers.

The market activity galvanised policymakers in Washington and investors. Lawmakers have focused much of their attention on “payment for order flow”, in which brokers such as Robinhood are paid to route orders to market makers like Citadel Securities and Virtu.

That practice has been a boon for brokers. It generated nearly $1bn for Robinhood, Charles Schwab and ETrade in the first quarter, according to Piper Sandler.

Gensler noted that other countries, including the UK and Canada, do not allow payment for order flow.

“Higher volumes of trades generate more payments for order flow,” he said. “This brings to mind a number of questions: do broker-dealers have inherent conflicts of interest? If so, are customers getting best execution in the context of that conflict?”

Gensler also said he had directed his staff to consider recommendations for greater disclosure on total return swaps, the derivatives used by the family office Archegos. The vehicle, run by the trader Bill Hwang, collapsed in March after several concentrated bets moved against the group, and banks have sustained more than $10bn of losses as a result.

Market watchdogs have expressed concerns that regulators had little or no view of the huge trades being made by Archegos.

“Whenever there are major market events, it’s a good idea to consider what risks they might have placed on the entire financial system, even when the system holds,” Gensler said.

“Issues of concentration, whether among market makers or brokers at the clearinghouse, may increase potential system-wide risks, should any single incumbent with significant size or market share fail.”



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