CFI Newsletter #14: The Climate-Methane-Food Nexus
+ Introducing the MooLoo, e-methanol powered ships, climate tech funding in 2021, and the potential of India's new EV subsidies
The Climate Finance Initiative Newsletter offers quick digests and insights around what is happening in climate finance. While the Climate Finance Initiative’s current focus of work is India-centric, we will capture a global perspective of climate finance in this newsletter on a fortnightly basis.
We think about cows a lot. So do climate scientists. They have been working for years to find ways to reduce the methane emissions from dairy farms. And we have seen some strange solutions come our way but the one we heard about yesterday - toilet training cows on a ‘MooLoo’ - is surely on the whackier end. That said, methane emissions are a challenge and in our big read, we explore the nexus between food, methane, and climate change and the need to tackle this.
But first, some not so whacky news from the world of climate finance…
Climate Finance by the Numbers
The global shipping industry accounts for about a billion tonnes of emissions globally. While this is less than 3% of the global GHG emissions, shipping emissions have been on the rise: increasing 10% from 2012-2018.
In 2018, the world’s governments agreed with International Maritime Organisation (IMO) to halve emissions by 2050, when compared to 2008 levels. They say large ships are hard to turn around, and the same can be said for reversal in shipping emissions. Since the accord was reached, IMO members have differed on how to reduce both the overall emissions as well as the carbon intensity for international shipping. Developing nations fear that steps to reduce shipping emissions will exacerbate the challenges around export costs and further increase prices of food and other important commodities.
But there is a need for quick action. Ships have an average lifespan of 25-30 years which means that the ships being built now, by being more efficient, could have a significant emissions reduction potential.
Another way to reduce emissions is to switch to green fuels. Maersk, world’s largest integrated shipping company, took the first step towards decarbonising its fleet by adding 8 large ships to be operated on carbon neutral methanol. These ships will replace older vessels that currently emit 1 million tonnes of CO2.
0.1% of the entire shipping emissions is no small start and more shipping companies are expected to follow, driven by their customers - large international corporations who have set net zero goals for their supply chains. We see this as a firm signal that net zero commitments are starting to drive change in corporate behaviours. Shipping industry has long quoted additional costs and lack of adequate green fuels as challenges, but those seem to become more surmountable in view of customer demand for decarbonised shipping.
USD 60 billion
There is a new segment attracting investors to the markets. ‘Energy Transition’ encompasses everything that decarbonises energy, transport, industry and farming is the new darling of the markets, attracting more than $500 billion in investment capital in 2020. This is more than double the amount of investment made in the sector in 2010.
While much of this investment is in public markets, the venture capital (VC) investment in early stage innovation is also seeing an uptick. US VC investments in climate tech - a sector that encompasses everything tackling the challenge of decarbonising the global economy with the aim to reach net zero emissions by 2050 - are expected to $60 billion in 2021, up significantly from the $36 billion number in 2020.
This boom in investments appears different from the euphoria of the previous decade. Economist estimates that VCs investment $25 billion in climate tech between 2006-2011 but lost more than half of it. This time, the investments are being propelled by real success stories. The likes of Tesla and Beyond Meat have delivered returns that are encouraging to investors. Also, unlike 2006, there is a definite shift in public policy and customer mindset to create a supportive environment for these climate innovations.
Renewable energy still accounts for around 60% of the broader markets and the $500 billion investment. But the composition of the VC investments give us hope that the trend might be shifting: 40% of VC investments are into transport and logistics, and some 15% into food and agriculture. We have been passionate advocates of looking at broader climate action beyond renewables; the trend may just have begun.
USD 3.5 billion
We have been waiting for electric vehicles to grow as India’s next sunrise sector, and the Government of India’s new financial incentive scheme for the automobile sector makes all the right noises for it.
The scheme incentivises automakers to invest in the auto component sector and supply chain in India through a performance based approach around the size of investment and sales targets. Over the next 5 years, the government is targeting about US$ 5.6 billion of new investment from carmakers to manufacture clean-powered cars, and for auto component companies to produce components for clean cars and to invest in advanced technologies such as sensors and radars for connected cars and other higher-end electronics.
What we found most interesting, however, is that this is a bit of an about face from the original scheme: an USD 8 billion incentive scheme mainly targeted at the gasoline vehicles and their components, with electric vehicles given a lot less focus.
What was the inflexion point to change focus to EVs?
Well it appears to be Tesla’s planned entry to sell its cars in India, and a hoped for longer term for the company to set up a manufacturing hub in the country. The entry of arguably the leading EV maker in world is being seen as an opportunity to make India into a global components and manufacturing hub for the higher-end of the automotive sector.
It is just not EVs that are being encouraged as part of the scheme, hydrogen-powered vehicles are also being incentivized, which aligns to a trend we have seen from India this year to make itself the Green Hydrogen hub of the world, but would probably not find favour with Mr. Musk, given his colourful views against hydrogen-powered vehicles.
Would we possibly look back at this as the moment where India leaves fossil-fuel based transport behind in favour of clean-powered EV and hydrogen? Only time (and the nitty-grittes of translating policy to action) will tell.
THE BIG READ
The Food-Methane-Climate Nexus
Food production tends to fall under the radar as a sector where we need to take climate action. Within this is overseen sector, is an often overseen greenhouse gas, methane, which offers an opportunity to make rapid and significant cuts to our global mitigation needs.
As his world was facing the stress and turmoil of revolution in 1848, the German anthropologist Ludwig Feuerbach dropped a pithy line, “We are what we eat.” Often quoted since then, it is meant to convey a sense of control and choice that an individual has on their health and fitness defined by one’s eating habits.
The eating habits of 7.8 billion people, however, do not provide a sense of control, especially from a climate lens:
Food-based agriculture accounts for 35% of all human-made greenhouse gas emissions.
Plant-based foods emissions contribute to 29% of global GHG emissions, consisting of 19% CO2, 6% methane and 4% nitrous oxide emissions;
Animal-based food emissions contribute 57%, consisting of 32% CO2, 20% methane and 6% nitrous oxide emissions;
Non-food utilization such as cotton and rubber production contributes the remaining 14% (ok this part is not directly food-based, but we are keeping it due to the agricultural context)
These statistics come from a recent paper published in Nature Food, by researchers from the University of Illinois - Urbana Champaign. The paper is one of the first to account for carbon dioxide, methane and nitrous oxide emissions from various sub sectors related to food production and consumption, and included this little nugget:
“Methane generated by rice cultivation and animals, and nitrous oxide from fertilizers are 34 and 298 times more powerful than CO2, respectively, when it comes to trapping heat in the atmosphere."
We are numbers people at CFI HQ, and numbers like these definitely got us interested to know more about the impact of the food we eat on climate change and the need to tackle methane emissions.
The high potential of tackling methane
Agriculture is the largest source of human-caused methane, contributing 40% of its emissions. The UN’s Food and Agriculture Organization (FAO) puts livestock emissions at roughly 32 percent of human-caused (which includes industrial activities) methane emissions, and paddy cultivation (flooded fields prevent oxygen from penetrating the soil and create ideal conditions for methane-emitting bacteria) accounting for another 8 percent of human-linked emissions.
Here is why tackling this quantity of methane in agriculture is important.
Methane lasts in the atmosphere for only 10 years, unlike the thousands of years that carbon emissions are present for. If we were to tackle methane emissions from agriculture today, we have the potential to eliminate its effects as well by the end of the decade. That is almost 26% of food-based GHG emissions being completely removed from the world’s carbon budget; where, food production as per current business-as-usual practices, is likely to account for almost all our available carbon budget if we are aiming for a 1.5 degree or 2 degree warmed world.
The Global Methane Assessment Report by the United Nations Environment Programme (UNEP) and the Climate and Clean Air Coalition estimates that current methane mitigation approaches can immediately lead to a 45 per cent reduction of methane emissions by 2030 - this is estimated to equal a substantial 0.3 degree drop in warming.
This is the hopeful part. But methane mitigation is not happening.
A familiar scenario: innovations are not scaling
We are not lacking in potential solutions from a technology and innovation standpoint. Alternative protein (e.g. insect-based feed) for animal feed, drip irrigation for rice cultivation, biogas digesters for manure management, use of alternative hybrid crops, crop waste management alternatives to burning, are just a few that can go quite a way and have found some adoption, but not sufficient scale.
Which is where it gets tricky.
The FAO calls for behaviour change and policy adoption, such as bans on crop burning and an emission tax, as drivers to get new solutions to be adopted. The idea is neither new nor (or surface) a complex one but there has been limited progress so far. We delve into the reasons:
Our approach to behaviour change needs changing
Behaviour change ultimately works best if a person is given a financial or convenience incentive. Too often, behaviour change is conflated with awareness that does not link to a solution or approach; you are just made aware of a problem and the need to change, perhaps how to change, but no route to effect the change. When a person who is made aware asks how they can change, an accessible solution has to be offered. A farmer who is being advocated to stop flooding their fields by taking advantage of the “free” monsoon rains needs to be presented with a solution that tackles the same issue with convenience: how do I water my fields without impacting cost and convenience?
A global methane emission tax is a one-sided approach
Economists’ favourite solution tends to be a global emission tax, and methane has its own mooted: a price of USD 800 per tonne of methane is projected to lead to a 75% reduction in total methane by 2050. While this is great for drawing on the basest of human incentives to get into action, and we would support one, this will struggle to see the light of day, as homo economicus often does not account for the practical contexts of how these are to be implemented.
They often miss out that lower-income countries will not be able to handle increases in food prices, without a mechanism that subsidises or offsets the increased price. A tax in only certain countries will affect their food exports but not others. An additional levy on countries by ones that do have a tax, them on countries that do not have such a tax will likely lead to food shortages of those imports.
Developing and developed countries will not see eye to eye on a global emission tax without a mechanism that subsidises or offsets the increased price, especially to lower-income countries, which brings its own mess into the picture, which is a bit too much for us to get into.
Speaking of Food Subsidies...
A report published by the UN claims that 90% of food subsidies, almost USD 540 billion, which is intended to support agricultural entities to grow foodstuffs with greater ease, end up encouraging activities that have a negative impact on people and the planet, from adverse health, environmental destruction, increasing inequality, and of course, climate impacts. Livestock farming done by large agricultural organizations happens to be the biggest receiver of food-related subsidies globally. Redirecting subsidies towards more climate-positive practices has become a clarion call, but it indicates that the problem of subsidies will need to involve stopping some and encouraging others, with many a vested interest in between.
So, how do we fix methane in agriculture?
Solutions that tackle methane emissions need to get to a level where they are able to compete with existing alternative options in place, e.g. drip irrigation systems vs. flooding a paddy field; insect-based feed vs. soy-grown crops for livestock.
While individual solutions and companies may be able to achieve this in their own limited sphere - first-mover companies do have an important role in showing the way, but at a macro-scale - but we will need policies to make this level-playing field more widespread and scale solutions.
The tried and proposed approaches to get to this level-playing field are not holistic. There is often a disconnect in such policies between what we term as push and pull incentives that needs to be addressed. Push incentives, like bans and emission taxes, look to cut the “bad habits” or negative impacts that cause issues, i.e. increased methane emissions. Pull incentives are those that make accessing a positive solution easier to adopt; subsidies, financing incentives, market demand, there are a few here.
Policies often only focus on or the other type of incentive. This means that an emission tax is not supported by solutions that reduce methane emissions being more accessible. In a similar way, financing for drip irrigation systems for rice farming is going to struggle when farmers are able to flood fields that draw water from “free” monsoon rains.
The net result is that a solution that solves the problem of reducing methane emissions is not made accessible to a farmer or related stakeholder to adopt.
What we need are policies and drivers that are holistic by involving both push and pull incentives. Where a ban on a negative operation to cut methane emissions, say reducing soy and corn as feed, is introduced, the policy has to also support the adoption of a sustainable alternative, e.g. insect-based feed, to take up the gap and opportunity created, to make the solution accessible and easy to adopt. It might not sound like much on paper, but it is rarely practiced, and it is as an essential start, to get us a lot closer to curtailing the almost 45% of methane emissions from our GHG budget by 2050.
Engaging with CFI
As always, if you are keen to engage or talk to us on our work plans (check out the deck here) or if you have something of your own to collaborate on, reach out to us below!
That’s it for Edition #14 of our newsletter.
As always, send all feedback, compliments and brickbats our way. And of course, we do appreciate you spreading the word about this newsletter.
We’re growing to build something collaborative with you and the more the merrier!
Simmi Sareen and Shravan Shankar