Tuesday, June 25, 2019

Top Greenhouse Gas Emitters

According to the Climate Accountability Institute, just twenty-five corporate or state-owned entities are responsible for 51% of the global industrial greenhouse gas emissions.  Only the most greedy, ignorant among us still deny the role of humans in combusting fossil fuels in the dramatic changes in Earth’s climate.  These changes have far reaching consequences, including mass extinctions of keystone species, loss of water supply, food crop failure, interruption of the food chain, among other changes that have far reaching ramifications for all human populations on the planet.   Investors concerned about allocating capital to activities that could spell doom for living things are probably well served by viewing a list.
Problem is the top four culprits are of the state-owned type and beyond the reach of individual investors like you and me. 

Cumulative 1988-2015 Scope 1-3 Greenhouse Gas Emissions (MtCO2e)
Cumulative 1988-2015 Scope 1-3 Global Industrial Greenhouse Gas,       % Total
China Coal Group
Saudi Aramco
Gazprom OAO
National Iranian Oil Co.

Scope 1 relate to direct operational emissions, i.e. fuel combustion, company vehicles and fugitive emissions
Scope 2 relate to indirect emissions from the generation of purchased electricity, heat or steam
Scope 3 relate indirect emissions such as the extraction and production of oil, gas and coal

China Coal
There are a number of companies involved in China’s coal industry, but the Institute appears to have lumped them altogether for the purposes of their report.  One third of China’s coal production comes from just seven companies, with Shenhua Group leading the rest of the group.  Together China’s coal companies are responsible for 14.3% of greenhouse gas emissions from 1988 to 2015.  Most are government owned and all fall under the influence of long-term policies set by the central government.  Even though China is a leader in development of renewable energy such as solar, wind and nuclear power, the PRC has invested huge sums to expand its coal power output. 
Power market policies in the PRC have been largely the impetus that has driven investment in coal-fired power plants.   The government set equal annual operating hours for all coal-fired power generators and set annual contracts to maintain those targets.  This generation quota system ensured demand for these plants that encouraged new investment.  The government also compensated coal-fired power plants with a rate-of-return policy that ensured a profit margin for each plant regardless of costs.  Despite some changes even the older, less-efficient coal-fired power plants can remain profitable.  These policies have kept the doors open and profits flowing for the worst polluters.  
The policy has attracted many newcomers to the coal power industry in China.  Provincial governments have the authority to approve new applications.  They have proven themselves capable of expediting the approval process, but not particularly discriminating from an environmental standpoint.
In sum, China’s centralized economy has misallocated capital in favor of power sources that are likely doing much greater harm to its population and economy in the long-term than if the country has gone without power in the first place.  Some might think that is China’s problem.  Unfortunately, greenhouse gases know no political boundaries and the effects of China’s emissions will impact us all for generations to come.
Saudi Aramco
Saudi Aramco is the second worse culprit in greenhouse gas emissions.  After an aborted attempt at an initial public offering, the organization remains beyond the reach of investors.  The company has made some progress in reducing greenhouse gas emissions by adopting new technologies that reduce emissions from the flaring of gas in its oil fields.  Nonetheless, per capita emissions have grown by ten times since the 1950s.  At 4.69 metric tons of carbon per person, the Saudi Aramco helps make Saudi Arabia the 18th largest carbon dioxide emitter in the world.
Part of Saudi Aramco’s plan to create publicly traded shares was to raise capital for investment in renewable energy.  There appears to be growing understanding in the Middle East of the need to reduce carbon in the atmosphere.  Nonetheless, Saudi Arabia is expected to experience greater not lower greenhouse gas emission through the decade ending 2029.  The country remains intensely carbon dependent and population increases as well as planned economic activity will lead to consumption of more not less fossil fuels.
True enough Saudi Arabia is a committed participant in the Paris Accord.  The government pledged investment in renewable energy projects and has set a goal of having 9.5 gigawatts of solar and wind projects completed by 2023.  Considering the Saudi Arabia used 289,929 gigawatt hours of electricity in December 2018, the solar and wind projects appear to be nothing more than a token publicity stunt.
Oil and gas is the lifeblood of Saudi Arabia’s 33.4 million people.  The country produced 10.3 million barrels of crude oil per day in 2018.  That represents half of the country’s gross domestic product.  It will take some time to turn that ship around and there are likely very few people in Saudi Arabia who have the courage to grasp the rudder.
Gazprom OAO trades on several stock exchanges, including the US OTC list under the symbol OGZPY and the London Stock Exchange as OGZD.  However, the company remains under majority control by its largest shareholder, the Russian Federal Agency for State Property Management.  Gazprom is the world’s largest oil producer and it is solidly under the control of the Russian central government.
Executives in Gazprom’s boardroom are not entirely oblivious to climate change issues.  Mid-2018 the company became the first Russian energy company to commission an independent review of greenhouse gas emissions.  The accounting firm KPMG did the work based on international standards.  Gazprom claims the report showed the company had been successful in reducing emissions by 12.9% in 2017, compared to 2013.  KPMG measured Gazprom’s performance in terms of tons in carbon dioxide equivalent. 
Yet, Gazprom’s report for 2018 claimed 12% of the global gas output through the extraction of 497.6 billion cubic meters of natural gas, 15.9 million tons of gas condensate and 40.9 million tons of oil.  Natural gas and gas condensate production in 2018, both set record highs for the company in 2018.  It will be interesting to see whether KPMG is commissioned to do another report and whether it will acknowledge that in continued extraction of fossil fuels there will be continued greenhouse gas emissions beyond the levels that the Earth can absorb without dramatic changes in temperature.

In the next post, we look at additional greenhouse gas emitters, more of which have publicly traded shares that are in the ownership of private citizens.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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