According to the United Nations, the COVID-19 pandemic has pushed the world "further off course" from the 2030 Sustainable Development Goals, while Russia's restriction of gas flows into Europe has caused a rampant surge in fossil fuel prices. This, in turn, has raised concerns over energy security around the world, distracting and disrupting the globally agreed plans of COP26 to accelerate cooperation and ambition toward decarbonization.

According to the United Nations, the COVID-19 pandemic has pushed the world &quot;further off course&quot; from the 2030 Sustainable Development Goals, while Russia&#x27;s restriction of gas flows into Europe has caused a rampant surge in fossil fuel prices. This, in turn, has raised concerns over energy security around the world, distracting and disrupting the globally agreed plans of COP26 to accelerate cooperation and ambition toward decarbonization.
In this context, it is imperative that China double down on its global leadership and intent toward its promise to &quot;strive to peak carbon dioxide emissions before 2030 and achieve carbon neutrality before 2060,&quot; according to President Xi Jinping.
Don&#x27;t get me wrong; China is already well ahead of the rest of the world in many aspects of technology and investments in decarbonization. Taking all solar and wind generation into account, China in 2021 added 101 gigawatts (GW) of renewable energy capacity, in striking contrast with Spain&#x27;s total energy generation capacity of around 110 GW in 2020. China also became the world leader in offshore wind in 2021, with cumulative installations of 26GW – half the global total of 54GW. China has set a really ambitious target for 120GW of pumped hydro storage by 2030, quadrupling the current installed base of 32GW – which itself is already the largest capacity of any nation in the world.
The global energy transition involves the convergence in technology trends across the stationary power, transport and heavy industry sectors. So it is no coincidence that China&#x27;s electric vehicle installations in 2021 surged 154 percent year-on-year to 3.3 million new registrations – by far the largest investment in transport decarbonization globally. And China&#x27;s technology leadership in battery manufacturing is evident to all, with the country&#x27;s world-leading electric vehicle battery supplier CATL set to commission Germany&#x27;s first lithium ion battery manufacturing facility later this year.
The European Union (EU) continues to make strong progress on decarbonization with its &quot;Fit for 55&quot; package – targeting at least a 55-percent emissions reduction by 2030 – as the clear interim step toward carbon neutrality by 2050. And the EU emissions trading scheme (ETS) price reached nearly 100 euros earlier this year, having witnessed a tenfold price increase in just the last four years.
But in the East, China&#x27;s national ETS has been building strong momentum since its launch back in July 2021, and this scheme will play an increasingly material role in pricing in carbon emissions as China moves toward peak emissions before 2030.
But with the surging cost of fossil fuel imports driving up inflationary pressures, in turn causing fears of a global interest rate tightening cycle as a new headwind to global economic growth and undermining China&#x27;s export opportunities. While climate science-denying countries like Saudi Arabia and Australia bask in the near-term benefits of surging profitability of their fossil fuel exports, it has never been more opportune for countries to drive decarbonization.
Electrify everything is the latest phrase buzzing around global energy markets, driving uptake in everything from ground heat pumps, rooftop solar, batteries of wheels (also called electric vehicles), smart grids incorporating AI-controlled two-way electricity flows, induction cooking, utility scale batteries, PHS and green hydrogen, not to forget energy efficiency and buildings&#x27; energy rating schemes.
With China&#x27;s President Xi Jinping pledging to cease coal power plant development abroad with immediate effect back in September 2021, followed almost immediately by the Bank of China pledging to cease financing new coal mining and power plants abroad as well, China has taken a critical step forward to delivering on the Paris Agreement.
However, many developing nations are seeing a return to economic growth post-COVID-19. Since growth comes as the inevitable need for increased energy, it is imperative that China both reinvigorate and green its ambitious Belt and Road Initiative to aid developing nations in countering rampant fossil fuel import inflation by investing in zero emissions domestic energy alternatives, leveraging China&#x27;s world-leading supply chains, manufacturing capacity and technologies to drive deflationary renewable energy uptake.
China is home to more than half the world&#x27;s steel manufacturing capacity. Now it&#x27;s the time for China to be working with its key global supply chain partners to develop renewable energy-powered green iron (direct reduced iron), invest in accelerated scrap recycling efforts and electric arc furnaces and pilot green hydrogen substitution for increasingly expensive imported fossil fuels. At the very least, this will enhance China&#x27;s energy security and energy independence, but equally, it will drive decarbonization, with all the associated air quality and health improvements for the people of China.
China should also take note of the landmark memorandum of understanding last month between Fortescue Metals Group of Australia and E.ON of Germany for the supply of 28 million tons per annum of green ammonia by 2030 (starting at 200,000t as soon as 2024). Aimed at permanently replacing one-third of all of Germany&#x27;s current methane gas imports from Russia, this 50 billion Australian dollars investment initiative will accelerate the technology development underpinning the accelerating global uptake of green hydrogen. Fortescue is pursing the development of a string of GW-scale green ammonia plants supported by renewable energy projects to deliver on this audacious decarbonization plan.
Most in the West are not aware that Ningxia Baofeng Energy Group of China has had a 150 megawatt (MW) green hydrogen plant already in operation since December 2021 – a facility seven times larger than the until then largest green hydrogen plant (at 20MW, owned by Air Liquide in Quebec, Canada).
The rapid technological gains in electrolyzers and green hydrogen, decarbonization of steel and aluminum, plus the rampant global uptake of electric vehicles making the now inevitable terminal trajectory of the internal combustion engine in passenger vehicles, shows the enormous excitement in the global energy transition. China already leads the world in manufacturing and deploying many of these new technologies. The investment, employment and export opportunities are huge, so now it&#x27;s the time to double down on efforts and not get distracted. Decarbonization industries of the future will mark this, the Asian century of development.

This article is also published on <a href="https://news.cgtn.com/news/2022-04-21/The-necessity-of-Chinese-and-global-energy-transition-19mo2XXUcEg/index.html">CGTN</a>. Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy &amp; Sustainability writers, their opinions do not necessarily represent those of illuminem.

The necessity of Chinese and global energy transition toward decarbonization

One of the successes of the COP26 summit was the growth in the UN-convened Glasgow Financial Alliance for Net Zero to a US$130 trillion of collective assets, almost double the total of just six months ago. Enforcement of the substance of this pledge comes next. And within that, BlackRock has moved massively on the issue of climate finance. But its exposure to the Adani group is a major inconsistency. 

A glaring inconsistency in the US$10 trillion giant’s commitment to climate action
One success of the COP26 summit was the <a href="https://unfccc.int/news/new-financial-alliance-for-net-zero-emissions-launches">UN Global Finance Alliance</a> growth to a <a href="https://www.reuters.com/business/cop/net-zero-pledges-improved-metrics-put-pressure-coal-power-say-investors-2021-11-16/">US$130 trillion</a>, almost double the total of just six months ago. Enforcement of the substance of this pledge comes next. And within that, BlackRock has moved massively on the issue of climate finance.
Just two years ago IEEFA <a href="https://ieefa.org/ieefa-report-blackrocks-fossil-fuel-investments-wipe-us90-billion-in-massive-investor-value-destruction/">wrote</a> about the financial costs of climate inaction for BlackRock’s investors, with devastating wealth destruction at <a href="https://ieefa.org/ieefa-report-ge-made-a-massive-bet-on-the-future-of-natural-gas-and-thermal-coal-and-lost/">GE</a> and <a href="https://ieefa.org/ieefa-why-2020-is-turning-out-be-a-pivotal-year-for-fossil-fuel-exits/">Exxon</a> clear examples of engagement with no time limits, transparency or consequences. Fast forward to 2021 and BlackRock <a href="https://www.pv-magazine-australia.com/2020/10/09/blackrock-crosses-the-aisle-at-agl-energy-shareholder-meeting-calls-for-accelerated-coal-station-closures/">repeatedly</a> <a href="https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter">articulates</a> both the imperative for climate finance action and the trillion-dollar <a href="https://www.cnbc.com/2021/10/25/blackrock-ceo-larry-fink-next-1000-unicorns-will-be-in-climate-tech.html">investment opportunities</a> emerging. And a Net Zero pledge is <a href="https://blackrocksbigproblem.com/blackrocks-2030-interim-climate-targets/">pending</a>.
Self-interest is a powerful motive. There is nothing more compelling to a finance executive than a review of a decade-long pair trade – going long Tesla / short General Motors. Or long Nextera / short Exxon. Or long Adani Green Energy / short Adani Power (more on this below). Investing in fossil fuels is a wealth hazard, notwithstanding the massive fossil fuel inflation evident in 2021, an event that is likely to <a href="https://reneweconomy.com.au/more-clean-energy-will-insulate-against-rising-coal-oil-and-gas-prices/">accelerate investment</a> in low volatility, domestic, cheaper, zero emissions energy.
BlackRock has stepped up on <a href="https://www.nytimes.com/2021/06/09/business/exxon-mobil-engine-no1-activist.html">engagement</a>, <a href="https://www.bloomberg.com/news/articles/2020-05-28/blackrock-warns-korea-s-power-giant-on-overseas-coal-plant-push">public transparency</a>, <a href="https://www.blackrock.com/corporate/literature/whitepaper/bii-global-outlook-in-charts.pdf">investor education</a>, and <a href="https://www.bloomberg.com/news/articles/2021-04-08/blackrock-raises-4-8-billion-to-invest-in-renewable-power">investing</a> in the zero emissions new industry opportunities, pushing for comparable global climate risk disclosures (TCFD, SBTi, SASB, IFRS) and even divesting (as a last resort for dinosaur industries in terminal decline i.e. coal).
The International Energy Agency (<a href="https://www.iea.org/reports/net-zero-by-2050">IEA</a>) made a profound pivot in 2021, saying getting to net-zero emissions by 2050 means the world can’t afford any new oil, gas or coal developments. The global climate policy leadership of China, Japan and South Korea in the last 12 months has strengthened the EU’s sustained conviction, and this has been elevated by the return to the Paris Agreement of the U.S. in 2021 under President Biden, driving ambitious interim 2030 targets, reinforced by the <a href="https://www.state.gov/u-s-china-joint-glasgow-declaration-on-enhancing-climate-action-in-the-2020s/">China-U.S. Joint Declaration</a>. The financial markets’ newfound understanding of climate risks may be evidenced by the <a href="https://www.endsreport.com/article/1733307/eu-ets-hits-record-uk-prices-following">EU emissions trading system (ETS) hitting a record high</a> this week of €85/t, doubling in the last year, and up tenfold over five years.
BlackRock has been staunch in its insistence that divestment policies are a last resort. There are now 187 globally significant financial institutions with <a href="https://ieefa.org/finance-exiting-coal/">formal coal divestment policies</a>, including BlackRock itself (but only for its active debt and equity funds, and only for thermal coal mining). Engagement and <a href="https://au.finance.yahoo.com/news/1-blackrock-opposed-election-800-121538630.html?guccounter=1&amp;guce_referrer=aHR0cHM6Ly90cmFuc2l0aW9uLm1lbHR3YXRlci5jb20vcGF5d2FsbC9yZWRpcmVjdC81Y24wWWxLb1MwYl90cUhfcUhwOER4RVhrS0U&amp;guce_referrer_sig=AQAAAKZcbp9F4NPA9TFyLvvLl7tJO5_fALa6H_W4JBQRsLu2-btm7DumPS9kcC3UdrvcoY3fpsAaouhh1nlLz3SRCNpKZL7tyoR2zIjePNd_mX2uaePHNoqskUr43DPbm_GFEkDBu8kbDPYCztFL2RO2NrwxZwP1f51A4LQedvNptdPy">voting</a> can be entirely ineffective for promotor dominated firms like Adani Enterprises.
In October, <a href="https://www.reuters.com/business/sustainable-business/bank-china-stop-financing-new-coal-mining-power-projects-overseas-q4-2021-09-24/">Bank of China</a>’s coal exit abroad policy sounded the death-knell for new coal power, following the exits of Japan and Korea. And China’s historic support for coal-fired power projects in developing countries is now history with the greening of the Belt and Road Initiative.
The groundswell to align with the IEA policy and divest all fossil fuels is building, with leadership from the likes of the <a href="https://www.eib.org/en/press/all/2019-313-eu-bank-launches-ambitious-new-climate-strategy-and-energy-lending-policy">European Investment Bank</a>, <a href="https://www.theguardian.com/environment/2021/oct/26/abp-pension-fund-to-stop-investing-in-fossil-fuels-amid-climate-fears">ABP</a> of Netherlands, <a href="https://ieefa.org/ieefa-cop26-axa-leads-by-example-accelerating-its-exit-from-oil-and-gas-to-battle-climate-change/">AXA</a> of France and <a href="https://insureourfuture.co/zurich-takes-minor-step-away-from-oil-and-gas/">Zurich</a>. And when the new <a href="https://www.adb.org/news/adb-should-take-stronger-leadership-role-effective-climate-action-asia-and-pacific-region">ADB</a> climate policy was watered down to leave its gas policy ambiguous (thanks to Japan), we saw a very telling U.S. vote abstention. And with the EU commitment to climate action undermined by gas industry lobbyists and wavering thanks to the Russian-EU gas crisis, it is great to see <a href="https://ieefa.org/ieefa-eu-considers-bowing-out-of-gold-standard-taxonomy-leaving-room-for-china-to-take-the-lead/">China stepping up</a> as a global leader, driving for a credible green finance taxonomy.
While <a href="https://ieefa.org/ieefa-eu-considers-bowing-out-of-gold-standard-taxonomy-leaving-room-for-china-to-take-the-lead/">some</a> in finance view divestment as a poor policy, to IEEFA this thinking ignores the growing global capital flight from fossil fuels, starting with thermal coal, but now spreading to <a href="https://www.argusmedia.com/en/news/2274154-aquila-resources-to-sell-australian-coal-assets?backToResults=true&amp;selectedMarket=Coal">coking coal</a>, <a href="https://www.theguardian.com/australia-news/2021/aug/17/bhp-to-shift-oil-and-gas-assets-into-woodside-petroleum-as-part-of-major-overhaul">oil and gas</a>. <a href="https://www.woodmac.com/horizons/commit-and-collaborate-squaring-the-carbon-circle-for-oil-and-gas/">Wood Mackenzie</a> now warns that the pool of climate-agnostic investors continues to shrink, elevating stranded asset risk. And the growing threat of <a href="https://www.smh.com.au/politics/federal/oil-and-gas-industry-facing-60-billion-clean-up-costs-for-their-own-rigs-20210804-p58fss.html">$60bn of unfunded rehabilitation liabilities</a> is significant enough to force even climate science denying governments to act to avoid taxpayers being left holding the can. With the growing <a href="https://www.afr.com/chanticleer/larry-fink-sees-a-seismic-reallocation-of-capital-20201109-p56csh">tsunami of capital reallocation</a> away from high emissions assets into zero emissions industries of the future, divestment is one tool to reduce growing stranded asset risks.
IEEFA sees the critically important role that the US$130 trillion UN-convened Glasgow Financial Alliance for Net Zero is playing, given its pledge to align with a 1.5°C world, and interim 2030 targets. Momentum is entirely one-directional.
Having established this critical global initiative, the next imperative is to lift the bar and cull the nonsense idea that global climate laggards like <a href="https://ieefa.org/ieefa-vanguard-funds-destroy-shareholder-wealth-with-us290bn-in-fossil-fuels-creating-a-5-6-performance-drag/">Vanguard</a> or <a href="https://www.ran.org/wp-content/uploads/2021/03/Banking-on-Climate-Chaos-2021.pdf">JP Morgan Chase</a> can be included without any decisive change in practice. With the U.S. Treasury’s <a href="https://home.treasury.gov/news/press-releases/jy0426">Financial Stability Oversight Council</a> identifying climate as a key financial risk, this adds to the weight of the <a href="https://www.sec.gov/sec-response-climate-and-esg-risks-and-opportunities">SEC</a> actions to reduce investor deception from greenwash.
Returning to BlackRock: the bar has been raised, but some gaping inconsistencies remain. One of the starkest is the fact that BlackRock has an estimated cumulative exposure to the Adani Group of India of over US$1,200m (debt and equity). This conglomerate is possibly the largest single private developer of new coal globally, with <a href="https://www.adanienterprises.com/-/media/Project/Enterprises/Investors/Investor-Downloads/Investors-Presentation/AEL-Q2FY22-Earnings-Presentation.pdf">110Mtpa of new Indian coal mine capacity</a> under development. And <a href="https://www.adanipower.com/upcoming-power-plants">9GW of new coal power plants</a>, more LNG import terminals, a <a href="https://www.hindustantimes.com/india-news/ministry-may-give-green-nod-to-adani-s-coal-to-pvc-plant-101624040726926.html">US$4bn imported coal-to-PVC proposal</a>, and new gas reticulation systems.
<img src="https://illuminem.b-cdn.net/articlebody/4488ed59e463315d4faecf84cf87dc76fde8fcf0.png" alt="undefined">
Adani’s brand in Australia has been trashed with its <a href="https://www.insurancebusinessmag.com/au/news/breaking-news/adani-insists-insurance-is-in-place-and-coal-weeks-away-from-exporting-316966.aspx">unbankable</a> Carmichael coal folly, which is due to commence exports close to a decade behind schedule, and despite repeated <a href="https://www.abc.net.au/news/2021-11-19/wangan-and-jagalingou-still-split-over-bravus-mine/100627626">traditional owner objections</a>. While the Adani Group is a leader in investing in zero emissions industries of the future in India, it has failed to give even a pretence of alignment with the IEA roadmap.
BlackRock argues that investing in one subsidiary is not the same as investing in another subsidiary. This is <a href="https://www.responsible-investor.com/webinars/adani-groups-new-coal-projects-why-and-how-investors-need-to-act">fallacious thinking</a> for a family controlled conglomerate which has <a href="https://scroll.in/article/923201/from-2014-to-2019-how-the-adani-group-funded-its-expansion">intercompany transfers</a> as standard operating procedure. BlackRock must call out and divest global laggards at the group level, not just at a subsidiary level. Hiding behind the passive excuse is greenwash, and action on changing indexes is overdue.
Investing in Adani Ports is investing in the largest private coal and LNG import infrastructure provider in India, and related party transactions are an ongoing investor issue, whilst Adani Ports, along with Adani Enterprises, has regularly invested in the <a href="https://www.theguardian.com/australia-news/2021/oct/03/queensland-police-refuse-to-remove-traditional-owners-occupying-adanis-coalmine-site">controversial</a> and <a href="https://inqld.com.au/business/2021/08/03/moodys-paints-bleak-picture-over-adanis-us500m-debt-mountain/">unbankable</a> Carmichael mine-to-port project. As a result of this and other ESG issues, <a href="https://www.nasdaq.com/articles/sp-dow-jones-indices-removes-adani-ports-from-sustainability-index-2021-04-12">S&amp;P Dow Jones removed Adani Ports</a> from its ESG indices in April 2021 and <a href="https://www.fortuneindia.com/enterprise/msci-to-drop-adani-port-from-climate-indices-over-carmichael-link/106255">MSCI</a> will likewise drop Adani Ports over Carmichael controversies in November 2021.
IEEFA has <a href="https://ieefa.org/ieefa-global-capital-mobilising-for-indias-500bn-renewable-energy-infrastructure-opportunity/">long</a> <a href="https://ieefa.org/ieefa-for-indias-re-goals-capital-is-key/">trumpeted</a> the developing world leadership of India’s energy transition, and how strong government policy frameworks are driving an unstoppable momentum for decarbonisation. Solar costs are half that of imported coal-fired power generation. India provides a clear example for other <a href="https://ieefa.org/ieefa-global-capital-mobilising-for-indias-500bn-renewable-energy-infrastructure-opportunity/">developing countries can leverage global finance</a>.
Moves by corporate leaders like <a href="https://economictimes.indiatimes.com/prime/energy/with-leaner-books-tata-power-can-make-it-big-in-renewables-but-dont-miss-ril-adanis-war-chest-/primearticleshow/84524999.cms?from=mdr">Tata Power</a> and <a href="https://ieefa.org/ieefa-update-india-and-australias-richest-race-to-net-zero-by-2030/">Reliance Industries</a>’ net zero by 2035 suggest a massive acceleration in Indian <a href="https://www.ril.com/ar2020-21/natural-capital.html">ambition</a>. Adani’s corporate position is far worse than an each-way bet.
We would encourage BlackRock to use its full unprecedented fiduciary power to underpin and accelerate the advances achieved at COP26, including its massive index position. When a US$10 trillion giant moves decisively, the global investor pack will follow.
This article is also published on <a href="https://ieefa.org/ieefa-blackrock-has-moved-rapidly-on-climate-but-adani-exposures-remain-a-major-obstacle/">IEEFA</a>. Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy &amp; Sustainability writers, their opinions do not necessarily represent those of illuminem.

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Tim Buckley

Tim Buckley

The necessity of Chinese and global energy transition toward decarbonization

BlackRock has moved rapidly on climate – but Adani exposures remain a major obstacle

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