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August 18, 2023

In Brief: US goes big on direct air capture; Australia considering CBAM mechanism

The latest news in ESG policy and regulation.

The US government has announced an investment of up to $1.2bn in direct air capture, according to a statement by the Department of Energy. The money will be directed to the development of two facilities in Texas and Louisiana, which are expected to remove more than 2mn tonnes of carbon emissions a year from the atmosphere. Both facilities should also adhere to the US administration’s Justice40 Initiative, which sets a goal of distributing 40 per cent of the overall benefits of certain federal investments, such as climate and clean energy, to disadvantaged communities that have historically suffered from pollution and underinvestment. The Texas facility will be led by 1PointFive, a subsidiary of oil and gas company Occidental Petroleum.

Elsewhere in the US, a judge in Montana ruled that the US state violated the rights of 16 youth plaintiffs by encouraging policies favouring fossil fuels, despite Montana’s constitution referencing a right to a clean and healthy environment. Montana recently amended its environmental policy act to prohibit the consideration of climate factors in permitting decisions. The case was the first constitutional climate lawsuit to go to trial in the US and could set a precedent for similar, youth-led climate claims. Montana is expected to appeal the judge’s ruling. If it does not succeed in reversing the decision, the state legislature will have to re-amend its environmental policies with regards to permitting decisions.

Australia is considering implementing a policy targeting the issue of carbon leakage, according to a  speech by the country’s minister for climate change and energy, Chris Bowen, to the Australian Business Economists. Bowen announced a review that will assess carbon leakage risks, potential policy options, and the feasibility of an “Australian carbon border adjustment mechanism”, which would look specifically at the steel and cement sectors. A final review report is expected in the third quarter of 2024. In his speech, Bowen also referenced the EU equivalent, which will go into force from 2026: “While some in [the] industry think a CBAM or other policy response can be implemented quickly, experience with the EU makes clear a range of complex policy issues need to be examined carefully … Australia also needs to carefully consider its trading relationships, consistency with international trade rules and interoperability with other schemes such as the EU[‘s].” He also rejected the idea that the country could start investing in nuclear energy.

Meanwhile, the Australian Securities and Exchange Commission has filed a claim in the civil court against pension fund Active Super alleging greenwashing. The regulator alleges that the pension fund engaged in environmental, social and governance misrepresentations by still owning stock it had claimed to no longer hold. Active Super had announced on its website that is has made divestments in tobacco, oil and gambling and has excluded Russian investments, following the country’s invasion of Ukraine. Asic previously started greenwashing proceedings against Mercer Super and Vanguard Investments Australia.

Brazil has announced an ecological transition plan, which will establish a regulated carbon market, the issuance of sustainable sovereign bonds, a sustainable taxonomy and the reformulation of its Climate Fund to finance activities that involve technological innovation and sustainability. The plan is part of the government’s $350bn infrastructure growth acceleration plan, whose fiscal impact and timeline still need to be published.

Indonesia has delayed publishing its implementation plan to disperse $20bn in funds under a Just Energy Transition Partnership, announced at a G20 meeting in Bali last year. The partnership would see public and private money help accelerate the country’s independence from coal, which represents 60 per cent of Indonesia’s electricity needs. According to media reports, the plan has been submitted to the government and financing partners, but details on the financing of specific transition projects still need to be ironed out.

The European Commission has adopted the rules governing the implementation of the carbon border adjustment mechanism during its transitional phase, which starts on October 1 this year and runs until the end of 2025.

The UK government has published its “Biomass strategy” over the short, medium and longer term, revealing the development and implementation of a “cross-sectoral common sustainability framework”, following consultation. The report also delves into the options of investing in bioenergy with carbon capture and storage, which is an emerging technology that saves carbon dioxide emissions from biomass while producing low-carbon energy.

The Green Technical Advisory Group has published 20 recommendations on how the UK government could apply its green taxonomy to wider policy areas, saying it is “imperative that the taxonomy remains science-based”. The report also looks in detail at local authorities, citing the government’s own net zero strategy, which points at 82 per cent of all UK emissions being in local authorities’ scope of influence. However, the government has delayed the publication of its taxonomy without providing a further date.

Nicolai Tangen, the chief executive of Norway’s sovereign wealth fund, has told the Financial Times that the UK is experiencing an ESG backlash, following local elections in London whereby the constituency of Uxbridge allegedly voted conservative after the London mayor’s decision to expand vehicle emission charges to outer London. Norway’s sovereign wealth fund holds more than $1tn in assets globally, and is known as the “oil fund” given it is funded by the country’s oil revenues.

A service from the Financial Times