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Cop that, climate accord (Macro Macchiato 25/11/19)

One of the more depressing charts I have seen shows a global decline in clean energy investment for 2018 with a lower prognosis for 2019. The chart, prepared by Bloomberg New Energy Finance and reported in London’s Financial Times newspaper, shows a drop in 2018 investment to below USD 300 Bn. Furthermore if 1H19 data are annualised, there could be further fall to a little over USD 250 Bn this year, a level not seen since 2013.

The biggest fall last year was in China, which would appear to be putting in another weak year of renewables investment. Earlier this year the Chinese central government withdrew solar subsidies and Premier Li Keqiang said in October that domestic coal production was a priority – perhaps justifying the volte-face with fear of further trade deterioration and a desire for greater energy security.

Most depressing perhaps was a quote from a Chinese policymaker, Li Junfeng, who tells the FT: “Now that the US has withdrawn from the Paris agreement, the entire global response to climate change is shifting…we have to be realistic…there’s no point being in a rush.” Todd Stern, the US Paris Accord chief negiator says, “there is a lack of political will in virtually every country compared to what there needs to be.”

The US and China display the sort of “you first…” inertia in policy support for greener energy that is holding the world back, and the sort of sentiment that might make ship owners say, “why should we shoulder the burden of investing in greener energy if the world’s two biggest energy consumers won’t?”

On Sunday, the fourth plenary session of the 19th Communist Party of China Central Committee adopted a pathway to “deeper reform and wider opening-up measures” (according to Xinhua News today). The government notes that China’s secondary and tertiary industrial sectors contributed 93% of GDP in 2018 and that, for the first ten months of 2019, foreign direct investment into the Chinese mainland grew by 6.6% year on year to RMB 752,41 Bn (about USD 107 Bn). While China promotes itself as a place to invest, its latest Party announcements say little about environmental policy. We seem to be going back to the era of growth-at-all-costs.

Also on Sunday, former New York City mayor Michael Bloomberg announced that he would run as a Democratic party candidate for President in next year’s US presidential election. As the founder of the Bloomberg media empire, he comes with business credentials, and is seen as a more business-friendly candidate than his main competitors Joe Biden, Elizabeth Warren and Bernie Sanders. His centrist pitch is based on competence and steadiness to rebuild the confidence that investors lack, which is holding back money from new environmental technologies such as the propulsion systems that ships will need to meet the IMO’s current and future emissions caps.

The Take Away

Perhaps apart from the IT sector, the world has invested less in fixed assets this year than last year. China is the world’s largest investor in fixed assets, but its investment growth for October was 5.2% annually, compared to this year’s peak of 6.3% in March and a long-term if admittedly unsustainable plateau of around 30% between 2003 and 2010. We’ve seen the effects in shipping: lower Sale and Purchase volumes, a slump in newbuilding contracting, a surprisingly weak dry bulk and container market in the fourth quarter. Investment in IMO2020 readiness and US sanctions are the short-term supports to a fundamentally weak oil shipping market. Without investment, demand for shipping will grow only weakly. But with political intransigence comes commercial inertia. I have a sense of 2019 drifting to a quiet and unfulfilling end.

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