Greenify #104: Carbon Credits & the EU Innovation Fund
April 5, 2024
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📌 Fact of the week
Revenues generated from all clean energy activities in 2022 was $2.56 trillion, according to Bloomberg. 😎
Hottest news of the week…
Regulation 🗃 – Certification of carbon credits on the rise
What happened: As carbon offsets are deemed by many to be the only possible tool through which our planet can get to net-zero, regulators are watching the market closely and stepping in with targeted measures. Importantly, a number of firms who are dedicated to assessing the validity of these offsets are emerging in the market: Puro, for example, has provided certifications for most of the delivered carbon credits in 2023 and currently accounts for around 80% of the certified engineered removal credits. Isometric is another company engaging in certification of credits. Carbon credits and their certifications are expected to grow hand in hand: Puro’s CEO said he expects nearly 100% compound average growth rates during the next three years. 📈
Zoom out: Carbon offsets vary by type, with cost and prices also varying accordingly. Offsets generated through direct air capture (i.e. sucking CO2 from the atmosphere) remain prohibitively expensive and are mostly purchased by large companies with enough cash to do so; conversely, offsets generated through simpler technologies/processes, such as forest preservation or renewable energy funding constitute the bulk of the market, given how cheap and abundant they are. However, the whole point we think lies in how effective and reliable these credits are: it is easier, hence more reliable, to measure the amount of CO2 captured through direct air capture vs forest preservation… in a scenario where regulation around the validity of these offsets becomes more stringent, we would not be surprised to see the more expensive (for now) credits emerge as winners.🥇
Business 💰 – A new EV player in China
What happened: Chinese smart phone manufacturer Xiaomi has entered China’s crowded EV industry. The company, the world’s third largest smart-phone manutcaturer, is investing its robust cash flows coming from the smart-phone business into EV production and has unveiled its new Speed Ultra 7 sports sedan, with a starting price of about $30,000. This comes one month after Apple has scrapped “Project Titan” project by which the American giant wanted to build its Apple Car. Xiaomi was also supported by the Chinese government, despite issuance of licenses for EV production is becoming increasingly competitive in China. 🛣
Zoom out: Diving into car production for a smart-phone manufacturer has its benefits. Firstly, a large smart-phone manufacturer, such as Xiaomi, can count on a solid supply chain on consumer electronics, needed for some of the car’s components. Secondly, the car purchased by customers would integrate with other “smart” objects, such as the customers’ home or phone. Xiaomi can also rely on cheap and efficient labor, and has the capability of making an SU7 every 76 seconds, quite astonishing when compared to car manufacturing worldwide. 🕰
Innovation 💡 - Reversing environmental damage
What happened: Bloomberg dives into the efforts being made by countries to restore 1 billion hectares of damaged land this decade. Specifically, countries are partnering together to restore ecosystems both on land and under the sea. Such initiatives include: 1) restoring baby corals, 2) fire-proofing forests; 3) cleaning cities’ air and 4) planting trees to increase bees’ productivity. Take a look to learn more about how these techniques work.🐝
Zoom out: According to the UN, more than 1 billion hectares of the planet’s surface have been damaged by human related activities. These include areas such as forests, where practices linked to deforestation due to illegal mining/food production have destroyed entire ecosystems, as well as oceans, where metals/plastic pollution also damage ecosystems and ultimately result in issues along the food chain impacting humans.⚡️
Deep dives of the week…
Chart of the week - How is the bloc investing?
In our Deal of the week we discuss some initial insights on the EU’s Innovation Fund. Below, we also look at the investments’ breakdown. Until today, the EU Innovation Fund has invested €6 billion out of the €40 billion announced, with the majority going into energy-intensive industry, such as cement makers.💰
Deal of the week - The EU’s Innovation Fund, room for improvement
The European Union Innovation Fund was established by the continent’s bloc to invest in decarbonization technologies between 2020 and 2030. Concretely, the fund aims to deploy €40 billion, funded by the EU’s Emissions Trading System (ETS) throughout the decade in green technologies. 🟩
Bloomberg Green sheds some light on the initial results achieved by the fund, and they do not look great. Specifically, Bloomberg looks at the fund’s investments in hydrogen and manufacturing. Approximately €750 million were given out to companies in the manufacturing industry, with half of these companies announcing plans to shut down operations, lay off staff or discontinue the projects completely, according to an analysis of project data by Bloomberg Green. ⛔️
It is too early to establish the fund’s success, as it may take decades for companies to develop scalable green technologies which can support the planet’s decarbonization; however, as Europe is facing intense competition from both China and the US (IRA funding), we think some degree of support, or “protectionism”, is required in order for local players to thrive. 👍
👋 See you next Friday, for the best sum up of this coming week!
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