Where others fear to tread: China and the frontiers of global lithium mining

Global demand for lithium is set to explode thanks to the insatiable demand for electric batteries. A typical electric car battery requires 8 kg of lithium. The International Energy Agency (IEA) estimates that demand for lithium will increase by 40 times from 2020 to 2040.

Lithium is the lightest and least dense of all the metals, that and its high energy density makes it the ideal component for batteries. Currently, the production of lithium is dominated by just a few countries, Australia, Chile, China and Argentina.

Chinese factories dominate the refining of lithium (refining turns it into lithium hydroxide which can used in batteries.) as well as manufacturing the lion’s share of electric batteries. This means that Chinese firms hoover up lithium supplies from across the world dominating its supply chain.

Electric Batteries

Electric batteries are set to be one of the critical industries of the future as the world tries to decarbonise by weaning itself off polluting petrol cars. Electric vehicles have reached over five percent of global car production as manufacturers switch focus . The market for electric vehicles is expected to reach US$ 827 billion by 2030.  

Now other nations have woken up to how much China power has amassed over the years. Many governments are now taking action to ensure they can take a slice of this critical industry.

The US, EU, India and many other countries want to make sure they can establish their own electric battery manufacturing sectors and avoid dependence on China. Part of this means ensuring cheap, reliable supplies of lithium. The scene is set for a battle between the great powers to control the supply and processing of this white gold.

Demand for lithium could grow to more than 40 times current levels if the world is to meet its Paris Agreement goals.

Chinas’ New Frontiers

Sinomines a Chinese mining conglomerate which is at the vanguard of China’s global commercial rise has recently invested in Bikita lithium mine in Zimbabwe. The mine around 320 km from the capital Harare underlines increasing Chinese investment in the economy which many western firms have fled.

China has also been establishing relations with the isolated Taliban Government in Afghanistan. Chinese mining giant Metallurgical Group Corp (MCC) have been looking to reopen copper and oil interests in the country. Other Chinese miners are rumoured to be considering extracting lithium in the country. Surveys conducted by the Soviet and US geologists over the last four decades indicate that the country has commercially viable lithium reserves around some of the country’s salt lakes.

Recent reports indicate that the Mes Aynak (reputedly the second richest in the world) copper mine in Afghanistan will open soon. The political and security situation in Afghanistan remains highly fragile, but demand is such that Chinese miners could be ready to extract lithium there soon.

An OPEC for Lithium?

Countries which produce and have deep reserves of lithium are looking to protect their own interests. Argentina, Bolivia and Chile are in advanced talks to create an organisation with the purpose of controlling the price of lithium. Indonesia is rumoured to be looking at starting another organisation based around the supply of other minerals vital for building batteries.

OPEC has had its ups and downs over the decades. But the organisation been highly successful in protecting the interests of major oil producers. However, the prospect of South American countries could raise the hackles of consumers like China and the US. Any attempt to control the supply of lithium may be met by a counter response. China and others could cut flow of capital and expertise needed to extract or mine lithium.

Countries that are building batteries are also looking to protect their interestes. Initiatives like the critical mineral partnership are an attempt by battery manufacturers to build reliable supply chains for critical minerals like lithium.

Australia

The biggest threat to Chinese dominance could come from the earth’s crust. Lithium is found in plentiful amounts in below the ground across the globe. Australia already produces vast quantities of lithium which is mined rather than extracted from brine. The giant Greenbushes mine alone produces a 5th of all global production. However, Australia has lacked refining capacity – turning the lithium into a usable lithium hydroxide which can be used in batteries.

The cost of extracting the metal is the main variable which determines price. High sustained demand will encourage others to try and mine lithium. The US is now looking to expand domestic production. Cornwall in the UK which was a mining powerhouse for many years is also now looking to open lithium mines. New innovative methods to extract the metal will likely emerge. All these factors should diversify the supply of the metal.

Although it takes 4 to 5 years to bring new mines online, capacity now looks set to grow rapidly. As electric batteries become more popular the potential for recycling them should increase which could also affect demand.

Dependence on lithium has pushed producers to look at alternatives such as sodium, magnesium, sea water and tungsten. However, none of these metals has been used at the scale in the way lithium batteries have.

What will the future bring?

As the demand for lithium grows so will the incentive to increase production. But new mining projects are capital intensive and can take years to become productive. Recycling, use of alternatives and new production should all ensure that there is no shortage of lithium in the long term. Lithium supplies are a crucial part of the global energy transition which means a shift from hydrocarbons to metals and minerals and that will also transform geopolitics for years to come.

Geopolitics, Climate Change and Energy Transition

Why the next decade will be warmer, more chaotic and conflict ridden

What is causing this?

  • Global politics is changing. China has emerged as a rival to the US and a multilateral world is emerging. China, Russia and others feel constrained by the US and the West. Conflict has already emerged in Ukraine and many predict war over Taiwan before the decade is over.
  • Many countries are highly vulnerable to climate change and will be busy dealing with a cycle of floods, heatwaves and extreme weather and the consequences of these changes: such as economic chaos, migration, starvation, and decline.
  • As the world shifts to renewable energy and starts kicking its addiction to fossil fuels new international power structures will be forged. Competition over the critical resources will intensify and future wars could be fought over water, nickel, lithium and copper rather than oil or gas.
  • These three trends will push the planet into economic, environmental and social decline unless governments, people and companies can respond to these challenges.

Global Rivalry

Geopolitical rivalry has already scuppered talks between the two big beasts of emissions – China and USA. US support for Taiwan has angered Beijing so much that it has suspended talks on all climate matters. Special US Climate Envoy John Kerry tried and failed to separate climate talks from other strands of diplomacy. Of course, Beijing and Washington will continue to develop their own climate plans, but lack of dialogue on such a crucial issue raises serious concerns.

This year the US Congress passed historic, albeit imperfect and two decades late legislation. But the Inflation Reduction Act (IRA) should now provide the path to a low carbon future for the country. Beijing is stepping up its impressive rollout of renewable energy but remains wedded to coal and many other high carbon industries. But the fact that the two climate giants are not talking is an indictment of global leadership.

Taiwan

This split could just be a taste of future conflict, China could seek to invade Taiwan potentially sparking a wider Pacific war involving the USA, Japan and others. China (and Russia) feel encircled by the west who they see as hypocritical and self-serving. Even without a full-blown war, the tensions between China and the US will see further disputes, flashpoints and proxy conflicts that will destabilise the global politics over the coming decade.

The Keys to the Economy of 2030

A low or net zero carbon economy is now the stated aim of virtually every country on earth. It is undeniable that progress towards net-zero has been too slow but shifts are clear to see. The falling price of renewable energy, the new focus on environmental values has taken root in large companies.

This trend is undoubtedly uneven, prone to greenwashing and has already attracted a backlash from climate deniers, but the momentum is clear. Large companies have at least now pretend to be green and many are making serious efforts to decarbonise their operations.  

But what does this mean to the global economy and how will this impact geopolitics?

On a macro level there is a shift from a fossil fuel economy based on supplies of oil, coal and gas. Fossil fuels are mined, drilled and shipped in huge quantities to power every corner of the globe. The constant flow of these fuels powers every part of modern life.

Decarbonisation means modern life will be primarily powered by electricity. Electricity from the sun, wind, earth and water (plus nuclear).

These technologies such as wine turbines and solar panels are capital intensive and rely on the supply of critical materials such as copper, nickel, lithium, graphite, rare earth metals, cobalt and others.

The mining, refining and supply chains of these materials will become geopolitical flashpoints in the same way the Straits of Hormuz or Malacca, the Russian Federation invasion of Ukraine are for oil and gas supplies.

The world is steadily shifting away from fossil fuel intensive to mineral intensive one, driven by trends like the take up of electric cars, policy shifts like the EU Green New Deal or Inflation Reduction Act in the US.

China took an early lead realising the importance of electric batteries and subsidised the sector for many years. Beijing also took a strategic role in controlling the supply chain of metals and minerals needed to build these engines of the transition economy.

Supply Chain Security

Now other states have caught on. The USA recently took action to secure its own supply chains of critical materials. Now India, the EU and others are following China and the USA’s lead. For many years the electric car battery was a futuristic dream. Now it has become a symbol of national and economic security.

However, modern supply chains are long, complex and messy. It will be difficult to fully control the supply of so many different materials and components. This means that in the scenario of a major conflict between China, Taiwan and the USA in the Pacific – supply chains would be severely disrupted and many industries reliant on the flow of trade from the region would be interrupted. Thus slowing the energy transition. 

2022 the year Climate Change hit home

2022 was for many the year that climate change felt real. Across China record breaking drought saw rivers shrink and whole industrial areas shut down due to the excess heat. India experienced a sweltering heatwave devasted farmers and making living conditions unbearable for many. But perhaps worst hit was Pakistan.

Pakistan received five times the normal amount of rain in 2022. The Indus River which runs through the length of the country flooded the country. The flood hit over 30 million people and washed away 2 million homes and businesses, over 700 km of roads and left widespread devastation.

The floods started with the record temperatures in Pakistan. Jacobabad recorded 51 C earlier in 2022. Hot air holds more moisture, this results in higher rainfall. This along with melting glaciers in the Himalayas created the ideal conditions for a record-breaking monsoon.

The floods have created thousands of internal refugees and the lingering water makes the perfect breeding ground for water borne diseases like dengue fever and malaria. Experts are also predicting that the floods will take years and decades to recover from. Farmers will struggle to plant crops, roads and bridges will have to be rebuilt and Pakistan’s overstretched finances will be pushed further into the red.

Climate Fragility

Pakistan was already a fragile country rocked by political instability and poor relations with its giant neighbour.

Despite these problems Pakistan had been enjoying moderate economic growth. But now the floods look set to reverse this trend as the country rebuilds. Pakistan may also end up becoming more dependent on China, which has invested heavily in the country as part of its flagship Belt and Road geo-economic policy. China has heavily backed infrastructure development, seeing Pakistan as an investment target and a potential alternative trade conduit from the Middle East. 

Storm Clouds over Sharm el-Sheikh

The COP 27 Conference in Egypt this November is a chance for countries to discuss climate change, decarbonisation and how to pay for it. Western countries promised but failed to deliver on a promise of US$ 100 billion a year to mitigate and develop resilience around climate change.

Pakistan’s climate change minister Sherry Rehman asked why the country is paying the price for carbon emissions it had very little part in. This question is certain to come up in COP27 in Egypt this year. Developing countries that are paying the price for crippling climate change will be asking richer countries that created the emissions to stump up for the costs.

The problem is that public opinion in many richer countries will be unfavourable to funding climate mitigation overseas. In addition there will be the usual squabbling on which countries are most culpable  – are high per capita emitters now and/or historic emitters but now decarbonising like the UK the most to blame? Many will point the finger at emerging economies like Pakistan with growing populations as future sources of carbon.

Pakistan also faces another risk as it has moved away from the west, the conflicts over Afghanistan and an eventual diplomatic breakdown with the US during the tail end of the war of terror saw aid inflows fall. Instead, Pakistan looked North and forged a partnership with China.

China – Pakistan Nexus

The China Pakistan Economic Corridor (CPEC) is a series of Chinese funded infrastructure projects across country valued at US 62 billion. However, economic pressures at home have hit China and its not clear if how they will support Pakistan through another debt crisis. Instead, Pakistan will most likely have to turn to a familiar source, the IMF – which will no doubt request economic reforms in exchange for further funding.

These over lapping crises have the potential to produce a outcome worse than the sum of their parts. This so called Polycrisis where disparate shocks interact and threaten to overwhelm our collective ability to respond to crises. Humans appear to be constantly firefighting and crisis managing, but not solving underlying problems.

Will this decade see humans resolve great power conflict, climate and many other technological and socetial issues? Recent history is not particularly comforting, but hiumans have proved themselves and adaptable and innovative in the past when faced with seemingly intractable problems.

Risk and Sustainability in Supply Chains

Investigating how firms can protect and decarbonise the arteries of the global economy

Modern Supply chains are both a major source of greenhouse gases and highly exposed to climate risks. Progressively minded companies should critically assess their supply chains and ask two questions:

➡️What are the climate risks inherent their supply chains and how can they be mitigated?

➡️How can supply chains be decarbonised to help push the world towards net-zero.

Below I will delve into how companies can assess and attempt to reduce the carbon emissions in their supply chains. Companies need to reduce carbon emissions to slow the impact of climate change. A warming planet means more incidents of extreme weather. These climate risks will impact supply chains more frequency and with greater ferocity as climate change accelerates.

Climate Risks

⛓️2021 and 2020 were unprecedented tests for supply chains. The impact of the pandemic meant volatile demand for products and energy as well as political turmoil. The result was disruption, inflation and many companies reconsidering their supply lines.

🔥🌊Extreme weather events also disrupted supply chains. Typhoons in Asia, a deep freeze in Texas and flooding in Canada and Germany, plus many other events interrupted trade across the world.

Climate change is already increasing extreme weather events. Over the next decades the world can expect more frequent hurricanes, flood, and extreme heat. Supply chains will be tested by ever more frequent, random, and intense acts of nature. Likely scenarios include:

🌊Flooding of a major export centres such as ports and cities. The flooding of Vancouver in 2021 effectively cut off large parts of Eastern Canada to road traffic. Floods like this will become a regular occurrence causing billions in damages and interrupting the transportation of goods and people to afflicted areas.

🔥Extreme heat resulting in drought and the failure of a major crop across multiple geographies at the same time (Rice, wheat, barley). This scenario would see supplies of staple goods fall and prices rocket. Countries will ban export of staple food products to feed their own populations. The result would be starvation, political unrest and food price inflation across the globe.

🌊Heavy rain in South-eastern China could disrupt the supply and production of rare earth metals. Rare earth metals are a key ingredient in the production of electric cars and many other modern electronic devices. Other countries like the US are now increasing the production and supply of these metals to reduce dependence on China.

⛏️Currently China is responsible for around 80 percent of the world’s production of rare earth metals. Disruption to one region could severely damage the supply chain for the likes of battery makers like CATL, car manufacturers or smart phones.

Identifying Climate risks along the supply chain. Climate risks can be either acute or chronic.

Chronic risks are long term trends such as changing rainfall patterns and long term rising temperatures that impact the environment. These are long term shifts damaging crop yields or industries which in turn impact supply chains.

For example, rising temperatures are already threatening the international coffee sector. A changing climate will cut coffee production, causing many existing suppliers to collapse or experience reduced production. This in turn will force producers to look to alternative suppliers.

Widespread droughts and desertification will force many farmers out of business. Climate impacts will be especially hard hitting in Africa, the Middle East and the Indian Sub-continent. Supply chains will be forced to shift in response to this by finding other sources of coffee or disappearing altogether.

Acute risks are one off or recurring incidents

💨Acute risks include hurricanes, extreme heat and rain and flooding. Extreme weather is already becoming more frequent and intense. Disruptions are already hitting supply chains. Weather related insurance claims have rapidly increased over the last decade. This trend will accelerate over the next decade.

Companies are ill prepared for these disruptions partly because understanding how climate risks are changing the world is a relatively new concept for most of the corporate sector. Most organisations are only now discovering and measuring the risks that climate change poses through application of the TCFD principles.

⛓️Companies will also face problem because they do not fully understand how their own supply chains operate. Companies will need to tackle the complexity and opaqueness of supply chains to discover how risky they really are.

💡Understanding supply chains in more detail will allow companies to identify sectors particularly vulnerable to extreme weather events. Armed with this understanding companies can make contingency plans, consider alternative supply routes or even using dual suppliers.

Other ideas are disaster proofing supplier facilities or production, allowing more stockpiling to be build a buffer for delays and taking out insurance to allow for losses. Of course, it is impossible to forsee how complex unpredictable weather events may play out. But it is possible to be well prepared.

Threat Multiplier

🪖Climate change will also act as threat multiplier, increasing the risk of conflict, uncontrolled migration, and political instability. In turn this places pressure on supply chains. Political violence in the Sahel and Sahara regions have been linked to increasing pressure on scare resources such as water.

⛈️Water supplies are threatened by falling rainfall and rising temperatures (connected to climate change) as well as by a growing population. These knock on, or second order effects, will become more common. However, they will be difficult to predict or even directly connect to climate change, but will contribute to a sense of a more chaotic and unpredictable world.

Firms that consider risk and address decarbonisation in their supply chains will undoubtedly gain a competitive advantage. Consumer demand, government regulation and shareholders are all pressuring companies to decarbonise their activities and by extension their supply chains. The first movers will decarbonise and (partially) derisk their supply chains before competitors.

However, whatever progress is made on decarbonisation a dangerous amount of climate change is “baked in”. Therefore, disruption to trade, logistics and supply chains are sadly inevitable and companies need to be assessing and mitigating these risks now. Of course it is difficult to mitigate many sudden and unexpected events such as hurricanes, or extreme heat waves. Firms will have to learn to live with and adapt to this more volatile, risky and dangerous world.

How should companies react

Companies should be analysing their supply chains for potential climate risk. However, modern supply chains are extremely complex and often opaque. It is difficult for even well-resourced companies to understand how all the commodities, products and components that flow across the globe to create their goods originate from. Supply chains have multiple layers stretching across different continents and run into hundreds or thousands of different suppliers.

This picture is not static, suppliers are constantly changing which adds another layer of complexity. Even a relatively simple product like an electronic toaster can have thousands of different components from hundreds of different suppliers. Despite this many companies like Unilever have tried to push systemic change through their supply chain to make it more sustainable.

Understanding Supply Chains

The first step for a company is understanding their own supply chains. Whether they are manufacturing company in China, a shoemaker in Ethiopia or a pharmaceutical company in Germany. All firms are reliant on a complex globalised supply chain to efficiently create a product. While it is probably impossible to track every step and supplier in modern trade networks. It is possible to focus on the most critical suppliers.

Companies should start with the basics. Identifying tier one suppliers of products and commodities and opening a dialogue with them around carbon emission and setting targets around how they can be reduced.

This is by no means an easy process and tier one suppliers may not want to, or easily be able to reduce emissions data. Another step companies can take to encourage suppliers to green themselves is to set transparent, public targets on emission cuts to act as a target and incentive for change.

Companies may need to take strategic decisions such as buying locally to reduce transportation (and hopefully carbon) costs. In other cases, suppliers may not be able to reduce their carbon emissions and alternative suppliers will have to be found.

Car Manufacturing

🚗The car manufacturing industry is unsurprisingly a heavy user of steel. Traditional steel production is highly carbon intensive. Swedish manufacturers have recently pioneered an innovative technique to create zero carbon steel. but this technology remains in its infancy and has not been widely adopted across the industry. Also using low carbon steel is currently more expensive – costing around 50 % more.

🏭Manufacturers will be forced into difficult choices that increase costs. The good news is that as zero or low carbon solutions become more common, costs will fall. So as zero-carbon steel becomes adopted by more manufacturers and production scales up. Over time the cost of producing steel in a sustainable way will fall making it a more viable alternative.

Second and Third Tiers

The next stage is engaging suppliers in the second and third tiers. This means the firms that indirectly supply a company. In many cases there may be no existing relationship or knowledge of these suppliers, which makes the task much more difficult. In theory there should be a cascading effect as first tier suppliers push change onto second and third tier suppliers.

As firms engage the first tier of supplier for low carbon alternatives, they will naturally turn to their suppliers to ensure they can also reduce carbon emissions. However, this is much harder to track as it relies on monitoring supply chain activity and trusting that suppliers are providing accurate information.

🛰️Improved data and analytics around supply chains can also be an ally in progress. Satellite data, the Internet of Things (which means real time tracking of products), blockchain to verify the exchange of goods can also make it much easier to track, locate and validate supply chains.

Companies have a long road ahead in terms of identifying climate risk and decarbonising their supply chains. But the firms that take the lead in decarbonising, desrisking and understanding their supply chains will give themselves a competitive advantage.

Eyes in Sky: How geospatial finance is transforming our understanding of the earth

🛰️In 1957 Soviet Union shocked the world by launching the first satellite, Sputnik into orbit. Since 1957, around 11,000 satellites have been launched into space by an ever expanding list of countries (Nigeria was the latest to start a space program) and private companies. The recent emergence of low cost and orbit “nano-satellites” (those weighing between 1 – 10 kg) and crucially costing less than half a million dollars has rapidly expanded the market.

Falling costs

📉The lower cost of launching Nano satellites has in turn brought down the cost of satellite imagery. Previously satellite images were largely the domain of the military, NASA and other specialist agencies. Now satellite data is widely accessible to the public and private sector.

🌍Each satellite is another set of eyes on the earth. In combination with terrestrial and aerial sensors we can observe the planet and all its vital signs at a lower cost with more accuracy than ever before. For many this means being able to navigate traffic or look at houses on Google Earth. Others soon realised the transformative scientific and business potential of satellite imagery.

🕶️🔎Satellites provide an accurate, up to the minute view of what is happening to land, sea, rivers, crops, cities, and every other part of the globe. With the aid of computers and machine learning this information can be transformed into valuable data sets. But what can you do with this data?

SustGlobal

I was fortunate to speak with Josh Gilbert CEO who co-founded Sustglobal, 3 years ago. Sustglobal’s AI-powered geospatial platform “empowers you to quantify climate-related risk and capture sustainable value”.

In order to provide useful data to companies Sustglobal first had to tackle a major problem. Namely how to transform petabytes of raw data from satellites into a useful financial signal.

Satellites can monitor dozens of climate data variables, but the quantity of data can be overwhelming. This is where machine learning techniques can be used to handle large amounts of data and help turn them into a useful financial signal.

Satellites monitor greenhouse gas emissions such as carbon and methane. This lens can be applied across widely dispersed mines, factories and power stations to provide company wide analysis of total emissions.

Sustglobal have been working with the European Space Agency to monitor the greenhouse emissions of commodity suppliers such as mining firms. Monitoring these emissions allows independent verification of whether environmental targets have been met.

When a mining company states that it has cut carbon emissions in its mining operations, rather than relying on a report from a company, the claim can be checked independently using satellites.

This kind of accurate and up to date information is crucial for the successful implementation of any potential carbon tax. Governments will need accurate up to date information on emissions levels in order to assess tax levels.

Disaster Recovery

🔥As the number and frequency of wildfires, floods and extreme weather events rises driven by climate change, satellite imagery can provide a real time picture of extreme weather events which can be invaluable in responding to disasters.

👩‍💻Real time information can also be combined with historical data to create scenarios of how these climate risks will unfold in the future. This information is increasingly important to banks and other companies who wish to understand their exposure to climate risks.

Climate Risk

Climate Risk has a data problem. It is impossible to see into the future, but knowing how and where extreme heat, sea-level rise and flooding will occur is central to this new field.

🛰️Satellite data can be transformed into a powerful financial signal. Satellite analytics can show where natural disasters such as flooding or wildfires are more likely to occur. This can be overlaid with information on company assets such as crops, mines, factories and housing. This way firms can understand which assets are threatened.

🏦Banks, insurance companies and the corporate sector are eager to learn how climate risks will impact their portfolio of assets. The emergence of the Taskforce on Climate Related Financial Disclosures (TCFD) has shifted perceptions and within a decade measuring climate risk will be a fixture in every major company.

🌊Gathering granular data on how company assets will be impacted by sea level rise, fires, floods will become standard. Right now there is a great deal of uncertainty around how accurate climate risk models can be. But it is certain that demand for climate risk data is only going to increase.

While it is impossible to know exactly how climate risks will play out in the future. Predicting where a devastating fire will break out or how long a drought will last is very difficult. But it will be possible to create more accurate scenarios of how climate risks will play out in reality.

Foliage Detector

🦅Enjoying a bird’s eye view of the world also means that satellite data can be used to monitor crop coverage and estimate yields. In a similar fashion forests can be monitored to measure deforestation, forest fires and vegetation and even the risk of trees falling onto power lines and causing outages.

This was satellite data can act as a referee for environmental governance. When companies state they are committed preventing deforestation or that they are not building on land which is exposed to climate risk.

These claims can now be tested using satellite imagery. The rise of ESG reporting been tainted by claims of greenwashing, that companies are hiding their true environmental impact.  Satellite data can back or disprove these claims or dismiss shaky assertions with real time evidence from the ground.

Verifying Supply Chains

Understanding complex supply chains is increasingly important for ensure high Environmental, Social and Governance (ESG) standards.  The supplies of raw materials, labour and manufactured goods is crucial. The extraction of metals, minerals and other natural resources which damage the environment could tracked by satellite. This could give assurances about the quality and integrity of supply chains.

Consumer goods giant Unilever has piloted satellite technology to ensure its suppliers are not contributing to deforestation. By taking GPS data and watching for movement around

Conclusion

Mainstream geospatial capabilities enabled by space technology and data science into financial decision-making globally. The emergence of this field is likely to spark many new products, innovations and companies.

What is especially exciting about geospatial finance is that it is still in its infancy. Geospatial data can still still be used for many applications where understanding changes in the natural world or built environment are important.

Some commentators have compared Geospatial data to mapping the human genome. Instead of mapping humans genetics satellites can comprehensively map and monitor the earth and how humans are changing it to an unprecedented degree.  

A Guide to Climate Tech Finance

The news in 2021 has highlighted climate change like never before. Storms and hurricanes wreaked havoc across the US as far north as New York. Floods in Germany and temperature records across the globe were smashed. Public opinion has shifted towards a demand for more action.

In Germany the Green Party looks set to play a key role in government following the recent election. The US administration passed a flawed US$ 1 trillion infrastructure bill which promised funds for electric charging points, climate resilience and support for decarbonisation.

At the same time governments, businesses and entrepreneurs are realising that there is huge potential in zero or low products and services. Climate tech is cross sector cutting. Nearly every facet of life needs to be decarbonised rapidly if the world is to avoid a climate crisis. This is attracting serious money from venture capital to multilateral banks to giant corporate investors.

BlackRock Chief Executive Officer Larry Fink described climate investing: “I look at this as one of the greatest investment opportunities over our lifetimes.”

Choosing to decarbonise early is a competitive advantage. Carbon emissions will become more costly and less socially and legally acceptable.

Climate tech promises to harness technology to accelerate the transition to a low carbon world. Renewable energy firms are the most visible climate tech champions. But there are many other ways to reduce carbon, through artificial meat, green chemical companies, and low carbon construction firms.

Recent Global Shifts Include:

Election of US President Biden who has acknowledged climate change as the critical burning issue of the day.

China, US, Japan, EU, UK and Korea have all recently promised carbon neutrality in the next 30 years. Of course, political promises can be reneged or ignored, but the political momentum is clear.

The pandemic changed perceptions about the environment, cut carbon emissions (at least temporarily) and showed the world that rapid social and economic shifts were possible and for some desirable. It is much harder for companies and governments to make the excuse that change is too difficult, or that reforms must be slow.

Many companies have followed up on their Paris Alignment pledges and committed to go carbon neutral, car companies saw the writing on the wall and the shift to electric cars became real. Many governments have set targets and dates to achieve zero carbon economies.

Financing Climate Technologies

Money is gushing into Climate tech right now.

Below I look at how climate technology is financed and how this could change in the future. Funding for climate tech is as varied as the sector itself which is largely defined by its goal. Angel investors, venture capital and government funds are heavily backing zero-carbon technologies.

A recent PWC report identified around 2700 investors backing around 1200 start-ups. The industry went from around US$ 418 million funding in 2013 to around US$264 billion last year. This might seem a lot. But the reality is that this number needs to be much higher for technologies to make a dent in reducing carbon emissions.

The scale of change required is awe inspiring. Entire sectors such as transport, infrastructure and energy require complete transformation and billions of dollars to make it a reality.

Petrol driving cars need to be replaced, energy systems shifted from fossil fuels to clean energy. Sectors such as construction which many do not even associate with carbon emissions will have to shift to using low carbon materials and processes.

The scale of this transformation means that the clean tech sector has the potential to grow and grow. Its rise will emulate that of social media in the last decade and its impact will exceed it.

Capital Needed

But for this to happen the entrepreneurs and businesses need funding to match their dreams. Like all new sectors climate tech is risky.

Many new innovations will not work as planned, some will find it hard to scale and of course many start ups will be picked off by rivals or larger competitors.

Climate technologies are also often capital hungry, developing and promoting new technologies can be extremely expensive.

Financing the first deep sea shipping lane powered by methanol or green ammonia will cost US$ 700 million in up front capital investment.

Venture Capital

Venture capital is now heavily backing the climate tech start up scene. According to one survey start-ups raised US$ 16 billion across 250 deals across the first half of 2021. This also represented a 50 percent increase on last year’s figures.

Venture capital firms are of course a fixture in the tech scene and the lure of climate focused start ups has grabbed their attention.

Well known funds such as Sequoia Capital which backed many of Silicon Valley’s biggest most successful stories are now backing climate focused ventures. Other VC firms like Clean Energy Ventures specialise in just climate tech.

Others like The Engine a MIT backed fund take a different approach providing long term capital to ventures trying to solve the world’s toughest problems. Climate change among them.

Start-ups are the most exciting and innovative creators of climate solutions. But established companies have the size and reach to really push decarbonisation.

There are many net-zero levers: alternative proteins, renewable energy or green construction. Climate tech is cross sector cutting which means that it will attract money from a variety of different sources, not just funds with an energy focus.

Corporate Venture Capital

Corporate Venture Capital is another rapidly growing source of finance for Climate Tech.

The funds have been created by major corporations who wish to back a fast-growing sector for financial and strategic reasons. The big tech firms like Amazon, Google and Microsoft have all seen the value of net-zero and backing their own climate tech finance divisions.

This could be to gain market share in emerging technologies or to counteract the fact that major companies are traditionally poor innovators.

Firms that have created climate tech funds include Chevron, Maersk, Microsoft and Unilever. These funds are backing firms which are pushing zero-carbon solutions such as Afresh which uses AI to unify logistics arrangement in delivery and transportation to increase efficiency and reduce waste. Chevron have backed Eavor a Geothermal technology company which hopes to drill deep underground to tap geothermal energy.

The king of the climate tech capital pile is Breakthrough Energy Ventures. Founded by Bill Gates over 5 years ago it has raised over US$ 2 billion for climate technology start-ups.

Emerging Markets and Traditional Banks

In emerging markets, multilateral banks such as the Asian and African Development Banks, the World Bank and European Investment Bank are major backers of climate finance.

In 2020 Multilaterals backed US$ 38 billion in investment into the climate sector. Much of this will be backing the renewable energy sector, energy efficiency and green infrastructure projects. Multilateral banks are also backing climate adaptation and resilience projects.

In a similar fashion Temasek the Singaporean sovereign wealth fund in conjunction with giant investment firm Blackrock are also getting in on the act. The two investment giants created a venture called Decarbonisation Partners which is placing US$ 300 million into a seed fund for climate tech.  

While traditional Banks are clearly a major source of finance they typically back well established renewable companies rather than innovative tech firms.

The emergence of the Taskforce on Climate Related Financial Disclosures (TFCD) has forced firms to disclose their strategy in adapting to a changing climate (with the recognition of climate risks), but this has also made firms think about how they can take advantage of the transition to a zero carbon.

This has seen mainstream banks measuring how climate risk will impact their balance sheets. Spelling out financial risk in this way will push banks to back climate friendly projects and companies

The green bond market has exploded in size over the last few years. US$269 billion was raised in green bonds in 2020. The market is led by the US, Germany and France, most of money raised will go towards green mortgages, renewable energy and transport (such as railway companies).

The green bond market tends to be focused on financing established climate technologies. However, funds that are backing green mortgages, low carbon buildings and other green projects and fall under the green bond taxonomy can directly spark demand for new climate technologies.  

Looking to the Future

Financing climate tech does not have the luxury of time. The sector needs to see a rapid increase in financing levels, this means that other sources of finance need to be tapped. Firstly, governments need to ensure that policy shifts on decarbonisation are matched by action.

For example, passing laws that encourage green construction, taxes on carbon or even meat. These measures will spark demand for climate friendly technologies.The private sector should be following the lead of venture capital and corporate VCs and backing more innovative climate tech firms as well as established technologies.

In the news

Climate Opportunities

Green growth offers opportunities for South Africans. The shift to renewables and a net-zero world creates new industries with often highly skilled positions much needed in South Africa and elsewehere.

Green economy growth is a silver lining for the planet and job-hungry South Africans (iol.co.za)

The Singapore Exchange makes climate related financial related disclosures reporting mandatory. As TCFD reporting becomes the norm the opportunities for climate risk reporting will grow. The sector will thrive and mature as reporting becomes more widespread.

Singapore Exchange proposes mandatory climate reporting in key sectors from 2023 | S&P Global Platts (spglobal.com)

Chevron plans to spend US$ 10 billion on renewable energy and reducing its carbon footprint. But is this just greenwashing and a reaction to recent actions by activist investors?

Chevron to spend $10bn on clean energy push | Financial Times (ft.com)

Climate Risks

A new threat from climate change. As ice melts it could set off huge tsunamis by reducing the weight on the crust below and unleashing intense seismic activity.

Chevron: Despite the company backing climate solutions with one hand it remains very much a traditional fossil fuel company. The oil and gas sector is increasingly fighting off activist investors that are challenging plans and pushing these giant companies to decarbonise.

Chevron prepares to head off challenges at investor presentation – Institute for Energy Economics & Financial Analysis (ieefa.org)

Could restoring Woolly Mammoths via gene editing be a way of restoring lost biodiversity caused by climate change. It does not stop the root problem but open up ways of restoring lost species once habits are restored or rewilded.

How Colossal sold investors on a quest to resurrect a woolly mammoth | TechCrunch

All talk of economic costs in addressing climate change tend to ignore the long-term costs of doing nothing. Climate risks in India, extreme heat, flooding and drought make a mockery of any attempts to protect the economy today, particularly if climate changes further disrupts the all important monsoon.

Economic impact of climate change on India | LinkedIn

A Guide to Climate Tech: How Technology, Innovation and Entrepreneurs Can Build a Zero Carbon World

Tiny brightly coloured microbes live in Yellowstone park’s volcanic springs which can thrive in incredibly hot temperatures up to 235 C. These so called extremophiles are bright yellow, orange, blue and survive and by turning light into energy. Scientists have long been fascinated by their unique habitat and properties.

The microbes caught the eye of Thomas Jonas the CEO of Nature’s Fynd. The company now takes these microbes and with the aid of water has created a process which can turn sugar into protein. This protein can then be used as the basic building block of an artificial meat product.

Nature’s Fynd was founded to tackle greenhouse gas emissions through food production. The company can produce “meat” with 99 percent less land and greenhouse gases than the livestock equivalent. Nature’s Fynd is part of new wave of companies focused on utilising new technologies to reduce carbon emissions.

Why Climate Tech is a Critical Sector

As the threat of global heating grows the need for solutions grows more urgent. Climate tech is an industry focused on solving humanities biggest problem. 2021 has seen record breaking temperature across the world along with more instances of extreme weather, floods, wildfires and hurricanes. From rocky beginnings as cleantech a decade ago which saw a lot of money pumped into firms but few success stories (Tesla a notable exception).

Now a new wave of exciting companies is emerging which are utilising technology to transition society to a zero carbon future.

Proterra is a leading provider of heavy electric vehicles, producing buses, trucks and shuttles all with zero carbon emissions. Founded in 2004 the company is taking advantage of the fact that more companies and governments are switching to electric vehicles for their fleet. As the number of charging points and policies favouring electric vehicles grows so will the market for these vehicles.

Each degree of warming will make climate tech a more attractive sector. As the problem of global heating grows, the solutions needed will become more urgent.

Pachama allows companies purchase carbon credits and restore nature through forest projects. They use artificial intelligence to monitor the forests and protecting older trees and growing new trees to restore habitats.

Aclima measures greenhouse gas emissions and pollutants at a local level which allows its customers to identify where and how they are contributing to greenhouse gas emissions, giving them the information they need to take remedial action.

Climate tech firms can be divided into seven broad areas:

  • Creating zero carbon transport (electric vehicles) or mass transport solutions.
  • Developing solutions around agriculture, farming and forestry which reduce emissions or even create negative emissions (this could mean a venture like Pachama or vertical farming solutions).
  • Decarbonising the built environment, firms that can decarbonise heating systems or make them more efficient. Or firms that can that make buildings with low carbon materials come under the climate tech umbrella.
  • Renewable energy companies, the most obvious solution for many observers, this can mean the production of solar panels and wind turbines or firms which can optimise energy efficiency, distribution and usage.
  • Companies which decarbonise industry through new techniques such as low or zero carbon cement.
  • Companies which utilise machine learning and artificial intelligence to make use of data sources such as satellite imagery, physical sensors and temperature readings which create a detailed information around the rise of climate change.
  • Carbon Capture and Storage is the most uncertain and unproven climate tech, but if deployed successfully could suck carbon out of the air and store it safely. Reducing the amount of carbon in the atmosphere could represent a silver bullet for climate change. But CCS has yet to be proven at scale.

The huge of scale of change required to get the world to net-zero is breath-taking. Estimates run into US$5-7 Trillion over the next couple of decades to hit current 2050 targets. The good news is that the sector is fast growing. In 2020 companies in Climate Tech raised capital three times faster than artificial intelligence. PWC put this figure at US$16 billion, a large amount but tiny compared to what it required.

How Disasters Could Drive the Climate Tech Sector

Perhaps ironically what will drive more investment and more demand for the products is each new piece of bad climate related news, every natural disaster will raise awareness about climate issues. The many pledges made at international conferences and by individual governments are also driving change.

For example, the EU recently published its sustainable finance taxonomy defining climate friendly activities. While many of the pledges are flawed and some may end up unfulfilled or ignored it does create a powerful sense of momentum.

Global giants Microsoft, Unilever and Amazon have all seen which way the corporate wind is blowing. These firms have all set up venture funds to back climate tech start-ups joining a stampede of new financial backers looking for the next growth story.

43 Unicorns and Counting

The business opportunities in this space are likely to rival previous tech booms and produce new Unicorns (tech firms worth a US$ 1 billion or more) and major new companies. Already there 43 Unicorns in the Climatetech sector, but many start-ups will get absorbed by rivals or simply not survive.

Climate tech differs from Cleantech (which experienced a boom/bust cycle a decade ago). Climate tech is focused on activities which reduce carbon emissions. Cleantech is broader and includes activities which help protect the environment such as water filtration or recycling, but not necessarily reducing carbon emissions.

Why Now? Climate Tech has hit a critical inflection point thanks to various factors:

Both demand from consumers and regulation from governments is driving the corporate sector to find new low carbon alternatives. The Paris Agreement, the EU Sustainable Taxonomy and the Task Force for Climate Related Climate Disclosures (TCFD) are all relatively new policy initiatives which

Energy is the most obvious sector for climate tech to disrupt. Solar and wind energy has already made a major impact on global energy production. Falling costs over the last decade (85 percent in the case of wind turbines) means that renewable energy is competitive with fossil fuels. But climate tech is wider than just energy production. For example, battery storage for cars or on an industrial level is increasingly a vital driver of decarbonization.

More efficient energy storage means that renewables become more effective as they can avoid the vagaries of the wind and sun. Grid management tools using machine learning and other techniques can also make for more efficient energy use. The market for electric vehicles pioneered by Tesla and the batteries which drive them is set to grow rapidly as car manufacturers shift production and governments look to ban their use.

Climate tech solutions can be divided into the vertical which deal with carbon emissions in one industry. For example, reducing the carbon loss from soil through precision agriculture or manufacturing process to make low or zero carbon concrete.

Alternatively horizontal solutions address carbon emissions across multiple sectors. Electric car batteries are a good example of this as they have allowed the car industry to shift to electric cars (EV), this encourages the use of solar and wind energy to produce the electricity to run the cars.  

Machine learning (ML) is another horizontal tool which can cut across boundaries and solve problems. ML uses algorithms which can perform a task normally done by humans, such as identifying pictures of friends on social media, act as a IT support chat bot to solve software issues or collect and identify patterns in satellite imagery.

The seven broad areas in Climate Tech are outlined below:

Transport

Moving people and goods by land, air and sea takes up a lot of energy. Most transport is run on oil products which of course leads to greenhouse gas emissions. It makes sense that many climate tech firms are looking to shift and upset this sector.

Electric vehicle production whether this be car, bus or truck is a highly visible sign of climate tech. Of course, the source of the electricity is key. If the electricity is supplied by fossil fuels, then electric cars are not climate friendly. Electric vehicles are only as green as the source powering them. The production of electric vehicles can also be problematic thanks to the need for rare earth metals in the battery which can be environmentally destructive.

NIO is a Chinese car maker which focuses on making Telsa like electric autonomous vehicles. NIO are luxurious vehicles with ultra modern autonomous driving features. With many countries promising to phase out petrol driven cars, manufacturers are shifting to electric models.

Food and Agriculture

Farms and agriculture are increasingly recognised as both major source of greenhouse gas emissions (around a quarter of all emissions) and a difficult problem to solve because of humans need for huge quantities of food and in particular methane producing livestock. Many policy initiatives are unlikely to impact on agriculture as it has been exempted from carbon pricing.

This challenge has resulted in many of the most climate friendly and innovative solutions. Meat production is a major and growing source of greenhouse gases (especially methane) and there many ethical concerns around livestock farming. The answer is a global shift to a plant based diet.

But of course this desire clashes with people’s love of meat. Food production companies such as Viva and Beyond Meat have used technology to create alternative proteins – which taste and appear like meat or fish but are plant based. These products typically represent 90 percent less carbon emissions than their meat equivalents.

The market for plant based products has grown rapidly. The number of vegans and people demanding more plant based foods has grown rapidly in many western countries. The Michelin Guide recently awarded 81 stars to vegan and vegetarian restaurants. A powerful symbol that the world is taking vegetarian food seriously.

The earth and soil and peat are also a major source of carbon storage and depleted soils and. Regenerative agriculture can mitigate climate change and involves activities which improve soil health and sequester carbon and enhance water retention.

Regenerative agriculture includes practices such as cover cropping and conservation tillage which farmers have been doing for many years but too much of modern farming has become destructive to the land and the result in billions of tonnes of carbon being released from the soil each year

Gingko Bioworks are encouraging sustainable agriculture through testing strains of microbes. These microbes can be used to fix nitrogen in the roots of plants. This  improves yields and reducing the need for nitrogen fertiliser (around 3 percent of global emissions).

Heavy Industry

Heavy industry is the fastest growing source of carbon emissions. The world’s demand for goods and products is seemingly never ending. Metals, concrete, fertilisers, plastics, and fertilisers all produce large amounts of greenhouse gases during their creation. Companies that can reduce emissions, reduce the amount of raw materials or used or make production processes more efficient can be classed as climate tech.

For example, 3D printing companies such as EOS and GE Additive can reduce transportation costs by allowing companies to print components reducing emissions. Hybrit is a Swedish firm which is trying to develop zero carbon iron and steel production from energy source to manufacturing process. Hybrit are experimenting with using hydrogen instead of carbon or coke to aid the reduction process. The reduction removes the oxygen from the iron which is a key part of making steel. Traditionally it is done in a blast furnace and relies heavily on coke (a major carbon source).

The Built Environment

Buildings emit large amounts of carbon thanks to heating and cooling systems emitting heat. But the materials that are used to build houses, factories, road, bridges and all our other infrastructure needs also involve large amounts of energy. Just cement production alone amounts to around 8 percent of all carbon emissions globally.

Efforts are underway to try and reduce this amount by trying to capture the carbon emissions during the manufacturing process. Ideas include switching to different more climate friendly fuel sources and by substituting materials such as using coal ash and blast furnance slag instead of clinker.

Through energy efficiency measures such as modern heating systems, improved insulation, plus smart heat management (often using machine learning) emissions can be reduced. These measures can be introduced into existing homes, but of course it is easier to be put into new builds. Green construction methods cut up front carbon costs through green materials.

Airex is a UK company which uses sensors and smart ventilation to help reduce heat demand in buildings. By cutting energy use Airex can cut fuel bills and using sensors can identify poorly ventilated areas and improve air quality.

Renewable Energy and Storage

Wind turbines and solar panels are the most obvious symbols of climate tech. Across the world renewable energy options are becoming more widespread and cheaper. Widespread industrial battery storage now promises to store energy and overcome the problem of when the sun is not shining or wind not blowing.

Hydrogen promises to be an exciting new carbon free energy source. Hydrogen burns like natural gas but without the carbon emissions. Excess renewable energy created in times of low demand can create hydrogen. This hydrogen can be then stored, transported and used as a zero carbon power source. However, this technology is still in its infancy

Climate Capture and Storage

The most uncertain, controversial, and risky climate tech area is carbon capture and storage (CCS). This is seen by some as the holy grail of decarbonisation but by environmentalists as a distraction from carbon reduction efforts.

Extracting carbon from the air and storing in the ground on a massive scale could theoretically solve global heating. Environmentalists view CCS as a risky distraction from decarbonisation which offers false hope. It is perhaps no surprise that funding has been patchy in this sector. The uncertainty and long-time horizons around CCS make it unsuitable for venture capitalists which prefer faster returns and more established technologies.

However, one source namely oil companies have been the biggest backers of CCS – although results have been poor so far. Expect these experiments to continue as if successful it would potentially allow oil companies to capture the carbon they are responsible for releasing into the atmosphere. Some have speculated that the technology for injecting carbon into the ground after capture uses similar techniques to the deep underground drilling that oil companies have such strong expertise in .

Climate Data and Analysis

The launch of many nano satellites has led to an explosion in the amount and quality of earth data captured. This has led to many new companies emerge to provide data on climate risks and forecasting. Companies like Jupiter Intelligence and Sust Global provide detailed information on physical climate risks for organisations. Understanding how the climate may create risks on a granular level allows clients to how extreme weather, drought, sea level rise and many other factors impact their assets.

Firms in this space use machine learning to process and sift through the huge amounts of data and turn them into actionable insights or financial signals. As well as climate risks this information can be used to monitor crop production, deforestation or reforestation rates (which can feed into sustainability ratings) and tracking natural disasters in real time to aid recovery efforts.

What’s Next?

For the success of Climate tech to continue there are several hurdles which need to be overcome. Firstly, financing needs to continue at an even faster rate, which in turn is dependent on the success of the companies involved in the sector.

Secondly the regulatory environment needs to shift further towards climate tech. This means actions like the phasing out of fossil fuel subsidies which prop up the oil and gas sector. It also means more initiatives like the EU sustainable Taxonomy which determines climate friendly activities. However, the problem is that if the legislation or regulation is too complex there is a risk that it will prove difficult for start-ups to navigate. This gives an advantage to larger firms with existing resources and could stifle competition.

Another limiting factor is lack of talented people in the industry. Climate tech is a young industry and its use of cutting-edge concepts like artificial intelligence means that there is a limited pool of workers to drawn upon. However, as the sector grows and the demand for such skills grow, so will the number of people attracted to it and they will develop the appropriate skills.

The rise of social media industry shows us how quickly a new sector can arise and dominate. The combination of new technology, the growing urgency of the climate crisis and the shift in the regulatory environment means that Climate Tech has a bright future.

The Machine Learning Revolution: How it can be used in the fight against Climate change

2020 was a devastating year for flooding across Africa. The Nile rose to its highest levels in half a century and Ethiopia and Sudan saw large areas swamped with water devastating farms and rural areas. Many African cities are ill prepared for natural disasters and with the continent’s urban population rising fast floods will increasingly devastate cities as well as rural areas.

As well as washing away crops, homes and livelihoods, floods can bring malaria and other water borne diseases to a weakened populace.

Climate change is making a hotter and wetter world with more unpredictable rainfall a perfect recipe for devastating floods.

The floods that shocked Germany in the summer of 2021 were proof that rich countries will not escape climate risks either. But wealth and technology can play a role in adapting to and measuring climate risk.

The World Observed

Across the world thousands of earth observation instruments, satellites, sensors and cameras are constantly collecting millions of points of data. This data includes temperature, greenhouse gas emissions, polar ice melt, wildlife statistics, forest cover (often using LIDAR which measures the density and carbon content of a forest) and lots of other useful information.

These critical indicators help capture the sadly declining health of the natural world and spiralling climate risks. But the enormous quantities of data collected by these instruments can appear overwhelming.

However, as the world is discovering machine learning techniques can be applied to the data, allowing organisations to sift through the information and turning into useful indicators.

Machine learning is a branch of artificial intelligence which uses data and algorithms to imitate human learning and therefore improve in efficiency over time.

Three Magic Ingredients

The three ingredients which make this possible are the collection of huge amounts of data via sensors, satellites etc, allied to powerful computing power which can handle the data and the application of machine learning systems which can improve the way in which they collection and interpret data.

Machine learning is a sub-division of artificial intelligence, and it means that systems can learn and improve the way in which they collect and interpret data independently.

Satellite data can used to track climate risks like drought, flood and deforestation which can be transformed into financial indicators with the help of machine learning helping firms monitor their risk profile.

Machine learning can be used to sift through the information provided by camera traps in wildlife reserves. Trailguard cameras use AI to spot different species and send an alert when the camera detects humans (or more importantly poachers) rather than animals.  Within minutes of poachers entering one of Africa’s wildlife reserves wardens are alerted and can respond to the threat.

Climate is Data Problem

Machine learning techniques are being deployed in an ever-wider number of settings.

Google have created the Environmental Insights Explorer which monitors the carbon dioxide footprint of buildings and transport networks allowing users to calculate their carbon footprint.

Satellite technology can monitor large scale carbon emissions, while sensors collect energy use data in buildings which can be used to optimise heating and cooling systems.

Climate risks are now a stark reality and machine learning can be used to help the world adapt. This could be through using data to predict floods or weather changes more accurately. Machine learning can also be used to effectively forecast energy usage to optimise renewable usage.

What Does the Future Hold

Identifying the scale and intensity of climate risks is a major challenge for governments and companies. Banks and insurers want to understand the physical risks to their portfolios. In other words: how much and where will sea level rise, how and where will extreme weather and wildfires impact on their assets on a granular level.

This is a problem for machine learning – collecting billions of points of data about the land, climate and sea and using them to accurately predict the future.

For example, researchers from Montreal Institute for Learning Algorithms (MILA) simulated what would happen to homes in Canada after damage by intense storms and rising sea levels. The objective is to try and make the risks of a changing climate real to people and businesses and provide them with actionable information.

How Can Machine Learning Aid the Battle Against Climate Change

Machine learning (ML) is particularly well primed to help the battle against Climate Change. Below are just some of the many methods and sectors Machine Learning can be harnessed to help mitigate, measure and adapt to a fast changing climate.

Energy Usage

Machine Learning (ML) can cut the leakage of methane through the monitoring of seepage data from pipe sensors and satellite imagery. ML can also be used to pinpoint where repairs are necessary in electrical infrastructure, cutting wastage and therefore increasing energy efficiency. However, ML could help the fossil fuel industry by making oil and gas more efficient and cheaper to extract and emit more fossil fuels.

ML can be used to model carbon emissions and energy mix helping planners to optimise the usage of renewable sources.

For countries without universal electricity ML can identify which electrification methods would be most suitable for a particular region. Normally this could require intensive resource heavy surveys. ML can use satellite imagery to speed the process up.

Transportation

Transportation is the source of around a quarter of global greenhouse emissions and represents low hanging fruit in terms of decarbonization. Cars and planes are the usual villains in this sector, but cargo ships are a major source of emissions.  

There are four ways in which to decarbonize the transport sector:

  • Reducing transport activity
  • Improving fuel efficiency
  • Switching to Alternative fuels
  • Moving to transport alternatives (car to train)

ML is in a prime position to drive these strategies. Firstly, ML can be used to collect large amounts of data about transport habits and patterns. For example, traffic can be monitored, and models created to forecast future demand which can help drivers and planners avoid congestion.

Predicting public transport usage and aeroplane take off times can make for more efficient, less energy using and time wasting travel. Similar techniques can be used for freight, using ML to consolidate trips to avoid empty trains/lorries and ships therefore driving efficiency and cutting the number of journeys.

Driverless cars driven by artificial intelligence are a particularly controversial transportation topic. In theory using driveless vehicles would be more efficient and safer (taking the quickest routes) and would free up time for humans.

However, this technology is unproven at scale and there remain many ethical concerns about the use of these vehicles, primarily who is responsible when things go wrong. The driver, car company or the programmer.

Electric Vehicles (EV) by contrast are now a familiar sight on the roads in many countries. ML and EV dovetail in climate friendly ways. Manufacturers can monitor EV and use ML to predict faults, battery management and usage. Over time as more drivers use EV more data will be collected on their usage. This can be used to improve performance by proactively spotting fault and identifying battery state degradation.

Cities and Buildings

Building, cities, towns and workplaces are a major source of carbon emissions. But they also offer some of the easiest fixes. Many modern state of the art buildings consume virtually none or no energy. Smart buildings using sensors and control systems can monitor energy usage identifying where more is required and using tech like windows with built in solar panels to collect energy for the building.

ML can be used to model energy consumption and in modern buildings with sensors optimise energy usage.

Energy efficiency also comes with major cost savings for occupants as well as the environment.  

The challenge is that you cannot replace building stock very quickly. Buildings also vary widely in size, shape and usage so one size fit solutions will not work. This means that these solutions take a long time to implement.

Climate Forecasting and Modelling

The many satellites orbiting the world are constantly producing huge amounts of data about land use, weather and climate patterns of the world. This data can used by scientists to build ever more complex climate models. ML has been utilised to classify crop cover, pollutants and many other kinds of data.

Deep neural networks could be used to account for cloud cover, a major source of uncertainty in climate models. Clouds can block sunlight and trap heat but are difficult to account for in climate models. Deep neural networks (an extension of ML) can be used to simulate cloud behaviour which and learn over time to improve the accuracy. Putting more accurate cloud behaviour into climate models should make them more reliable.

ML can be used to make climate predictions at a local level. Knowing which areas are likely to flood or suffer more wildfires is valuable information for firms trying to map the climate risks to their assets.

For example, an agribusiness dependent on the land will be impacted by any shifts in long term rainfall, while flooding and extreme weather could also drastically alter the productivity of the land. Understanding and modelling future shifts in climate at a very granular level will help businesses adapt.

Forests and Farmland

Huge amounts of carbon cycle through the biomass of trees, soil, bogs and peatland. Thanks to unsustainable farming practices and deforestation along with intensive cattle and livestock farming around a quarter of all greenhouse gases are released through agriculture.

As the world heats tinder dry summers cause ever bigger forest fires and permafrost which release ever more greenhouse gases. Carbon release in agriculture is not only a major contributor to greenhouse emissions but also one of the most difficult to tackle given well established agricultural practices and growing demand for meat in much of the world.

ML along with satellite imagery can identify how much carbon is released from the ground and how much is held within forests and soil. This would make is easier to identify how to manage land to where regulations are being breached and to help governments avoid further carbon release.

ML can aid reforestation by ensuring that trees are planted efficiently – by locating planting sites and then analysing data about tree health and biodiversity. ML could also be utilised to predict the direction and speed of fires, allowing firefighters to decide where to fight and where to try and stop the spread of the fire.

Adaptation to a new Climate

A new era of climate change or Anthropocene will be one of rapid adaptation. Humans will have to quickly adapt to a new world of painful extremes. Navigating a world of devastating natural disasters, disappearing coastlines and blistering heat will mean a wholesale shift in how societies function. Current infrastructure and agricultural systems will buckle under the stresses of these changes and new ways of working and living will have to be rapidly improvised.  

ML will be a critical part of mapping and planning this new world. ML has applications from predicting disasters, to designing and maintaining new infrastructure. From monitoring ecosystems to detecting carbon release from soils and forests.

ML is not a replacement for the political and economic shifts that are required for a zero-carbon economy, but they represent a potent tool which can aid the policy decisions which drive reductions in carbon emissions.

ML could also be used to measure and coordinate individuals and groups to push for action on decarbonisation. By identifying and predicting how individuals or groups will react to changes like carbon taxes, governments can assess their impact prior to implementation. This could help avoid protests and strikes that could hold up meaningful climate action.

Speculative Technologies

ML could also assist some of the speculative technologies which have been proposed to tackle global heating. Carbon capture and storage would collect C02 direct from the air and store it in the ground. The technology has been trialled, but it is extremely costly and unproven at the scale required to make any difference. ML could help model and detect where the prime underground storage places for carbon might be.

Solar geoengineering is the idea that reducing solar radiation would cut temperatures on Earth and the impact of global heating. Proposals include cloud whitening, robot boats crossing the ocean, mirrors in space reflecting the sun. All of these proposals are speculative but as desperation about climate change grows the incentive and temptation to try these moonshot ideas will grow.

Machine Learning is far from a solution or silver bullet for global heating. Instead it represents a potent tool which can be deployed in many different approaches that can aid in the battle to mitigate and adapt to the climate era.

Geopolitical Aftershock: Climate Change and Commodities

Food security and the dangers of a hungry population are a major global risk and geopolitical flashpoint. Corn, rice, soy, coffee, copper, iron, nickel, crude oil, natural gas and propane are just a few of commodities traded in huge Supertanker sizes quantities across the world.

Commodity trading is worth billions a year and is a cornerstone of the global economy, the glue that connects farmers, miners to merchants, industrialists and refiners to consumers.

However, a sobering new report by the Commodity Futures Trading Commission highlighted the fact that financial markets are not recognising the risk that climate change poses to commodity trading. These risks could plunge commodity markets into chaos even if they are recognised.

Millions of people already suffer from food poverty and insecurity in India, Africa and Latin America, but even in the wealthy United States around 10 percent of households suffered food insecurity last year as the country experienced a sharp pandemic sparked recession.

Climate change over the next couple of decades will dry rivers, disrupt traditional weather and weather patterns such as monsoons. A warmer world means more wild fires, drought and sea level rise which will destroy coastal farmland and river deltas.

All this spells bad news for agriculture, climate change will decimate crop yields across the world while population is still predicted to be growing.

The FAO expects the global population to rise by 2 billion and food demand to grow by 60 percent by 2050. But by 2050 without drastic action catastrophic climate change will be ravaging agriculture.  

For example India, Vietnam and Thailand are the world’s premier rice exporters, a major drought in two or three of these places would see a major global rise in the price of rice.

As these effects take hold over the next decade and the realisation that agricultural produce is less secure, there will be a concerted effort to monitor and protect food sources so exports do not mean local people starve.

Food Nationalism

Food nationalism will take hold across the world as populations demand government’s prioritise local food chains. During the pandemic a number of countries put exports controls in place to ensure their own people got fed first. Export clampdown will in turn create further prices swings.

There are many ways which humans will combat these problems, many innovative solutions exist including:

  • Vertical farms growing crops inside away from the vagaries of weather, such Danish venture Nordic Harvest.
  • Growing more climate resilient crops which are better able to withstand heat and drought.
  • Farming and agricultural production could also be boosted through improved technology or by utilising more farmland

However these measures are unlikely to stop the full force of climate change, some crops such as rice and wheat cannot be grown at scale indoors and there is limit to resilience measures and how far crops can be adapted.  

Insecticides and pesticides are already decimating insect populations across the world and much of the world’s land is already severely degraded. Given so much land has already been put under the plough there is a limit to how much more can used.

The trade in metals and minerals are not immune to climate risks. It might appear that mining would be unaffected by climate change, but droughts, extreme weather and extreme heat could all make certain mining operations much more difficult. Mines that rely on regular water supplies could see those dry to a trickle.

Global Supply Chains

Global supply chains which bring these metals from deep inside the earth to be processed and sent onto to manufacturing plants in an intricate series of steps will be under more threat than ever before. Extreme weather events, flooding, greater incidence of disease and growing geopolitical tensions are just a few of the factors which those governing supply chains will be concerned about.

In geopolitical terms fluctuating commodity markets will create major price fluctuations and supply problems will push suppliers to look for more stable sources of commodities.

Crops and agricultural produce will be sourced from new more climatically suitable areas. So the South of England could become a major wine growing region while the Spain and Italy suffer as their crops suffer in excess heat. Innovative companies like Nordic Harvest could be big winners as the world turns to innovate climate friendly solutions.

Coffee Shortages

Countries most exposed to climate change – South Asia and Africa will suffer most acutely will also see the commodities such as coffee, chocolate, rice are likely to be hit hard.  Coffee the drink which powers people’s mornings in every corner of the world is a US$ 70 billion a year industry. Now warmer temperatures are encouraging the fungal diseases which are destroying crops.

Changes in rainfall patterns are also costing coffee growers, too much rain can make the fungal infections worse, too little and the crop will not grow. Adaptation is hard because of the unpredictability of rainfall and heat, if you invest in a drought resistant crop but then experience excessive rainfall and widespread fungal growth any resilience measures will be unhelpful. Right now customers are not feeling any change, but in time they could see prices rises and many varieties wiped out.

Instability and the effect of climate on commodities has not been priced in by global markets which means any correction could be painful and expensive. Investors are increasingly turning to risks assessment like the Task Force for Climate Related Climate Disclosures which attempt to measures a company’s climate risk exposure.

Commodity trader and suppliers will have to pay close attention to climate risks as they disrupt global markets over the next decades.

Taking the Long View: Climate Change and the Military

The new US Defence Secretary Lloyd Austin has declared that climate change would be recognised as a global risk and a major security threat. The contrast with the Trump administration which ignored climate change or actively took measures to make it worse could not be starker. Recognising the problem is the first step to addressing it. Unfortunately, climate change is a major systemic issue which cannot be wished away through policy changes.

Environmental and political groups have long made headlines about climate issues but much less noticed militaries around the world have also been expressing concern and quietly making plans. Climate change is not on its own going to make the world more violent. Instead, it is a threat multiplier, a changing climate will create the conditions that will result in a more dangerous world.

Sea Level Rise

Sea level rise threatens to start destroying many of the world coastal cities in 20 to 30 years time. Thousands of seaside settlements and millions of acres of farmland will be lost to the incoming sea. Migration will start from low level island states in the Pacific. This will be politically explosive as it will effectively mean countries disappearing under the sea and homeless migrants turning up to neighbouring countries.

But the real impact will be felt when megacities like Dhaka, Shanghai and Mumbai start losing their battles with the sea. While some metropolises may try building walls or other defences, ultimately the sea will be unstoppable.

This process is already underway in Jakarta. The wealthy and governments will flee inland or go the new capital planned for the neighbouring island of Borneo leaving the poor to suffer in decaying, drowning cities. The chaos and mass movement of people will cause conflict as people try move to different regions of their homeland or to cross borders in huge numbers creating social upheaval on terrifying scale.

Tensions will flare between newcomers and existing residents, rich and poor. To make matters worse tropical storms and extreme weather will increase in strength creating more disasters which will make living in coastal cities even more undesirable.

Military Installations

Military installations such as naval bases are also vulnerable to rising sea levels and extreme weather. These factors can overcome infrastructure built for different era. It will not have escaped the US Military Command’s attention that a wealthy well developed part of the country, Texas, was devastated by cold weather and snow. The Lone Star State ground to a halt in February 2021 with many losing power and water as result around 80 people died.

The US military has been trying to find ways to cut down on its massive fossil fuel consumption. More use of renewable energy and greater efficiency will cut the bill and reduce carbon emissions and cut energy bills.

Militaries around the world constantly develop scenarios which may occur and test their response. Most obviously this would be war with a rival, but militaries have to respond to many different situations.

All Hell Breaks Loose

One Scenario the Pentagon have imagined is the “All Hell Breaks Loose” where other countries are torn apart by conflict and extreme weather creating overlapping and never-ending disasters. At the same time the military are dealing with trying to provide relief efforts at home.

The US military’s own installations could be at risk. Naval bases are threatened by sea level rises and more frequent storms will mean installations have to be evacuated.

Competition for scarce resources such as water and food are also likely to cause conflict particularly in poorer countries and those with limited resources or that are already experiencing conflict. Covid has squeezed the price of food which has shot up along with many other commodities recently.

Prices will likely fall as the world eventually returns to normal. However, this could take a few years as the world readjusts after Covid which gives plenty of time for unrest or revolution to be encouraged by a hungry fed up population suddenly released from the bonds of Covid isolation. Some analysts linked the Arab Spring to dramatic food prices rises, while this may be simplistic, empty stomachs are a potent reminder of the poor governance and inequities suffered by many.

Food Security and Ethiopia

Covid disruption is one factor then the effects of climate change truly hit home the impacts will be much harsher. Rising temperatures in Africa and the Indian Sub-Continent are likely to reak havoc on agriculture.

Food security are already major concerns in these regions, climate change will make it far, far worse. For example coffee production in Ethiopia and maize growing in Mozambique could be disrupted by 2030 seeing a drop in yields from anywhere between 10 to 25 percent.

The widespread failure of crops will result in food shortages and famines but likely result in export bans which will cause food prices to shoot up across the world. This instability and chaos will put pressure on militaries who might be forced into action to try and stop large scale migrations, act as a humanitarian forces and intervening in conflicts.

Water Wars

As resources such as food and water become scarce, the potential for conflict increases. Egypt and Ethiopia recently came close to war over a dam the Ethiopians were building which threatened to cut the flow of water to the Nile.

Pakistan, India and China face potential conflict over the headwaters of the many rivers which flow from the “third pole” the Himalayas. When disappearing glaciers threaten the flow of the Brahmaputra, Ganges or Indus tensions between the countries facing existential threat could explode into war.

Militaries around the world are waking up to the reality of climate change and threats it poses. While they will not be the biggest advocates for change or mitigation around climate change they could be a group that effectively highlights the risks that a changing climate poses.

The Green Futures Index: How to Rate the World’s Climate Progress

If the world is to hit ambitious climate goals over the next ten years and avoid the worst effects of climate change, we need huge shifts in our economy. This means mass uptake of renewable energy, rapid decarbonization policies and the development of sustainable economies.

There are signs this is happening, the pandemic has seen the oil industry hit hard in 2020, losing 40% of their revenues due to a huge drop in demand. In turn this helped greenhouse emissions fall 7% (relative to 2019). But the fossil fuel industry still made US$ 1.5 trillion in revenues over the same period, five times total investment in renewables which indicates the scale and difficulty of transitioning to a sustainable, climate friendly economy.

At the same time there is an appetite for change across governments, the corporate sector and the public. But how should this progress be measured, the new MIT Sustainable Green Futures Index attempts to do just that. The Index rates 76 leading countries on their progress and ability towards building a low carbon future. The index measures countries across five pillars; carbon emissions, energy transition, green society, clean innovation, and climate policy.

It is probably no surprise that European countries dominate the top of the index with 15 of the first 20 places. Iceland is the leader, followed by Denmark – both countries renowned renewable energy and climate policy leaders.

Norway is third in the table thanks to measures such as leading the adoption of electric cars and rapid transition to a low emission economy. However, Norway remains a major oil exporter and contributor to other countries carbon emissions, which may be reflected in its poor score in the green society pillar.

The energy transition pillar was dominated by African countries; Ethiopia, Angola, Uganda and Cameroon are all leading a move to clean energy.

Much of the continent has seen rapid adoption of solar and wind energy. Ethiopia has been in the news thanks to its construction of its monster dam near Sudan and conflict in the Tigray region but its Green Climate Resilient Economic Strategy has been in place since 2011 and has led the way in promoting a clean future.

Morocco is also prominent in the Index as an African country which has pioneered clean innovation. Morocco made an early decisive shift toward renewables, lacking the oil or gas reserves of its neighbours (such as Algeria) it grasped the future with both hands.

Now the country is on track to have a 52% renewable energy share by 2030. The Moroccan Agency for Energy Efficiency has become a centre for expertise – it hopes it can promote and share expertise on renewable energy across Africa.

The green society pillar is driven by preserving the environment, recycling levels as well as meat and diary consumption. Singapore tops the pillar thanks to its advanced recycling program and low use of meat and dairy.

New Zealand despite being a high performer overall is last in this category thanks to its high meat consumption and lack of green buildings plus a poor recycling rate.

New Zealand does top the Climate Policy Pillar, which is the most important element contributing 40 percent of the total score. This pillar measures countries climate ambition as determined by the national determined contributions (NDCs), as well as the effectiveness of the policy frameworks that will deliver these targets.

Policy is also defined as the development of carbon pricing measures, sustainable agricultural policies and the so called “pandemic pivot” – in other words what do stimulus packages offer towards decarbonisation such green infrastructure and transition. Denmark and France excelled in this pillar. Denmark’s recovery program placed EUR 5 billion to make homes more energy efficient.

While each pillar can contain some interesting results, it is the overall index score which counts. There is no real surprise that the countries at the bottom of the chart are the so called climate abstainers.

These are typically fuel exporters like Saudi Arabia and Russia who have consistently blocked climate initiatives. We can probably expect these nations to delay meaningful change until it is too late.

Arguably the most critical countries are those which will drive global decarbonisation due the size of their economies and emissions. Right in the middle of the table (40th Place) is the US, it should and must improve this position under the new Biden Administration.

China sits just below the US at number 46. While the country is a leader in renewable technology it also remains heavily dependent on coal. But China should now feel the pressure from the US to up its climate game.

India is perhaps surprisingly just outside the green leaders at 21 in the table overall given its high carbon emissions, but it partly makes up for this thanks to its rapid uptake of renewable energy, primarily vegetarian diet and ambitious climate policy.

The Green Futures Index will help judge the relative performance of nations in the drive to decarbonise and develop sustainable economies. In time the Index could become a well known benchmark like the World Bank’s Doing Business Survey.

Decarbonisation and sustainability will become a growing factor in judging whether to invest or even broker alliances with other nations (climate diplomacy). As the world faces climate breakdown understanding who the laggards and the heroes are will be ever more critical.

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