Signs of Progress in Reducing Carbon Emissions

On Earth Day, the anti-climate change agreement that had been hammered out in Paris back in December was officially signed by representatives of 175 countries.

There’s no doubt about the importance of the Paris Agreement priorities.  We keep hearing about climate change and its dramatic consequences.  On the face of it, this seems to be an overwhelming situation and is full of challenges and bad press.  For instance, we hear that car companies in Germany – no less – have cheated in their reports of gas mileage.  We hear horror stories about the poor people in China who go around the streets of Beijing wearing face masks to filter out the extreme air pollution.  We hear that the Arctic ice cap is melting rapidly.

Thus, on the face of it, it seems that nothing good is happening.  Clearly there is lots to do to rectify these conditions.  But indicators we consulted from the International Energy Agency show that some trends are headed in the right direction.  Yes, there’s a long way to go in counteracting climate change, but there is progress. [1]

Lower Emissions in Several Parts of the World

Carbon dioxide emissions are already drifting lower in industrialized regions.  For the 34 major industrialized countries belonging to the Organization for Economic Cooperation and Development (OECD), total emissions peaked in 2005 and by 2013, the latest available, they had fallen 6.1%, overall.  In the U.S., emissions are down 10.2% in that timeframe, and in Europe, 11.7%.  Granted, there is more to do toward achieving the Paris Climate Change agreement goals.  But this is certainly a start.  We’ll come back with a couple of examples shortly.

Emissions are, though, still rising in many of the world’s regions.  China and India are two obvious examples, with CO₂ output up 67.5% in China from 2005 to 2013, and 72% in India.  Emissions in Africa are up 25.3%.

Even in these places, there are some signs of improvement.  In both China and India, the increase in emissions is evidently tied to economic growth, which has been quite rapid.  But notably, emissions have increased by less than GDP.  In China, GDP was up at a 10% average pace from 2005 to 2013, while emissions increased at “only” a 6.7% rate.  Two positive developments are producing the slower rise in emissions:  energy usage is also expanding less than GDP and the energy that’s being used produces somewhat less emissions over time.  In India, GDP grew at a 7.5% rate, while emissions rose at 7.0% pace.  There, energy use is also growing more slowly than GDP, although the specific kinds of energy used there are still producing increasing amounts of CO₂.

By contrast in Europe and the U.S., the decline in emissions is resulting from declines in energy use and declines in the CO₂ content of the energy used.  So there’s a shift toward “cleaner” energy.  Here is a little bit about the efforts of two major U.S. companies to reduce their own carbon footprints.

Specific Companies Take Specific Actions

General Electric reduced its energy use by almost 19% from 2004 to 2014.[2]  For carbon emissions, companies’ carbon footprints are often characterized as emissions per dollar of revenue, and over that ten-year period, GE cut down that measure from 59 metric tons per million dollars of revenue to 33.9 metric tons.  Among other projects, it has redesigned the engines it makes for Boeing aircraft, and it has restructured operations at a power plant in Greenville, South Carolina, by simply installing real-time sensors and instituting a measuring system.  Its plans going forward are directly tied to the 2-degree-Celsius formula emphasized in the Paris agreement

American Airlines has found several interesting ways of reducing fuel consumption, obviously the main source of any airline’s carbon emissions.[3]  They’ve learned they can taxi around airports using just one engine.  They’ve learned they can reduce the weight of a flight meaningfully by switching from paper flight plans to using iPads and also having flight attendants use small Samsung tablets instead of a 5-pound paper instruction manual on the planes.  Finally, they attached “winglets” to the tips of the wings of 240 of American’s planes, improving the planes’ “lift”; this change alone saves 700,000 metric tons of carbon emissions a year.

Low-Carbon Investment Strategies

In addition, from a different perspective, we note with considerable interest that companies with low carbon emissions or small carbon footprints constitute a growing theme for investors.  Standard & Poor’s has even devised indexes of stocks for low-carbon-emissions companies and fossil-fuel-free companies.[4]  The “S&P 500 Carbon Efficient Index” has been marginally stronger than the full S&P 500 index over most time periods in the last several years.  Since the beginning of 2012, an index of fossil-fuel-free companies has outrun the overall market by 5%.  While that’s not a huge difference, it does suggest that investors view lower-energy or clean-energy companies in a favorable light.

Here are two examples of that investment strategy.  At that Paris Climate Change conference, the New York State Comptroller, Thomas DiNapoli, announced that the New York State Common Retirement Fund would invest $2 billion in a fund created by Goldman Sachs which emphasizes companies with small carbon footprints.  The Common Retirement Fund is the pension fund for New York State employees and is said to be the country’s third largest pension fund.[5]  Similarly, the non-profit McKnight Foundation, with a total of $2.1 billion in assets, can perhaps be identified as a pioneer here; back in 2014, it invested $100 million in a broad-based carbon-efficient fund managed by Mellon Capital.[6]

The distinction for these two investment initiatives is that they are active in-vestment strategies.  Previously, funds that wanted to emphasize climate and environment concerns generally used a di-vestment strategy, eliminating coal and possibly oil companies from their portfolios.  But selling these shares has had little impact because those companies are so large that having a few shareholders sell out doesn’t mean much.  Instead, enlisting fund managers to devise investment strategies for companies that operate using desirable practices makes a more positive, constructive statement.[7]

Thus, there are tangible efforts at individual investor and company levels that encourage and support the implementation of carbon reduction actions.  Environmental issues have the advantage that they are clearly measurable, so we can see progress.  As we said at the outset, there is a lot to do, but there is progress.

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[1] International Energy Agency.  CO2 Emissions from Fuel Combustion Highlights (2015 Edition).  http://www.iea.org/publications/freepublications/publication/CO2EmissionsFromFuelCombustionHighlights2015.pdf.  All the country data cited comes from Chapter 6, “Summary Tables”.

[2] GE Sustainability.  http://www.gesustainability.com/performance-data/building-things-that-matter-goals-metrics/ .  Accessed May 1, 2016. 

[3]  American Airlines. https://www.aa.com/i18n/aboutUs/corporateResponsibility/environment.jsp .  Accessed May 2, 2016.

[4]  Standard & Poor’s Indices.  http://us.spindices.com/indices/equity/sp-500-carbon-efficient-index.  An option on this page permits the comparison with the S&P 500; those daily data can all be downloaded for as much as the last 10 years.  Other pages include the Fossil-Fuel Free Index and similar indicators.  Accessed April 29, 2016.

[5]  Tina Rosenberg.  “An Investment Strategy to Save the Planet,” The New York Times. “Fixes” blog.  January 5, 2016.  http://opinionator.blogs.nytimes.com/2016/01/05/an-investment-strategy-to-save-the-planet/ .  Accessed April 30, 2016.

[6] Marc Gunther.  “McKnight Foundation: Investing for climate Impact,” Nonprofit Chronicles, April 24, 2016.  https://nonprofitchronicles.com/2016/04/24/mcknight-foundation-investing-for-climate-impact/.   Accessed April 29, 2016.

[7] Tina Rosenberg.  Op. cit.