The Sustainable Investor weekly (issue 40)

15th September 2022

Topics - Cancer causes and air pollution, methane emissions, future energy system costs, Nordic electricity “independence”, mine tailings and insurance (again), and a successful malaria vaccine.

We are gradually shifting the weekly to a Thursday publication, to give space to publish our upcoming long form blogs. Watch this space. And at the risk of being boring, please subscribe, it helps us a lot and if you are reading this in LinkedIn, please like and/or share.

The Sustainable Investor - our weekly summary of the key news stories, developments, and reports that are impacting investing in sustainability, the wider climate related transitions, and a greener/fairer society. The important word in this sentence is investing - it’s perfectly possible to use our capital to support sustainability, and still earn a fair financial return.

This week’s top story looks at the breakthrough (normally an overused word but this time it really does seem to apply) in our understanding of what might be one of the causes of lung cancer, and its looking like its air pollution. This could have implications for the decarbonisation debate. We then move to orphan (ie undocumented and abandoned) oil & gas wells, which are potentially a major source of methane emissions. They need to be properly capped. We then briefly touch on a potentially important report that looks at how most energy-economy models have historically underestimated deployment rates for renewable energy technologies and overestimated their costs. Basically, we should assume faster, and more cost effective roll out. Then we examine an article than discusses Finnish electricity independence, and the lessons it may (or may not have) for the rest of Europe, before quickly covering yet another mine tailing failure (we flagged the insurance risks only last week) and a good news story about a vaccine for malaria.

Before we start - a late addition. According to a post by Transport & Environment, a number of NGOs have walked out of the EU expert Taxonomy group over a lack of independence. The NGOs claim the European Commission has interfered politically in the group and acted against evidence, despite its legal obligation to follow science-based advice. While this debate has been rumbling away in the background for a while, this public statement flags to all investors that political processes are, well political. This doesn’t mean the work on the taxonomy is not useful. What it does mean is that we should treat with caution any “labels” that come out of it.

Important - this blog does not constitute Investment Research as defined in COBS 12.2.17 of the FCA’s Handbook of Rules and Guidance (“FCA Rules”). See the end of this blog for important terms of use.

Pollution, Cancer and PM2.5

Scientists reveal how air pollution can cause lung cancer- in people who have never smoked (The Francis Crick Institute

In a nutshell - what does the story say

• Scientists from the Francis Crick Institute and UCL, led by Cancer Research UK Chief Clinician Professor Charles Swanton have revealed how air pollution can cause lung cancer in people who have never smoked. The study examined data from more than 400,000 people and found higher rates of other types of cancers in areas with high levels of fine particulate matter, known as PM2.5. 

  Globally, about 300,000 lung cancer deaths in 2019 were attributed to exposure to PM2.5 and it is estimated that 1 in 10 cases of lung cancer in the UK are caused by outdoor air pollution. 

• Inactive cancer-causing mutations that accumulate naturally can be “woken up” by air pollution enabling them to grow and potentially form tumours. The team found that mice with a mutation associated with a particular type of lung cancer (EGFR), that also had air pollution levels similar to those normally found in cities, were more likely to develop cancer than those not exposed. The mechanism unearthed is that Interleukin-1 beta (IL-1𝛽) is released in response to PM2.5 exposure. The research team found that blocking IL-1𝛽 prevented cancers developing in EGFR mutation-carrying mice.   

Our take on this

• Why is this important ? There are two links with investing activity, the first is around the longer-term drive to reduce air pollution, including PM2.5, and the other relates to repurposing of existing drugs, to help solve new challenges in an unexpected way.

• The link between ambient air pollution and life expectancy has been well documented. In a 2020 study conducted by the Max Planck Institute for Chemistry it was estimated that global excess mortality from all ambient air pollution was between 7.1 and 10.4 million per year. In addition, it was estimated to lower life expectancy by between 2.3 and 3.5 years - more than from tobacco smoking. And think how much attention that topic gets !

• A number of long-term studies looking at data from Seattle and Canada have suggested a link between proximity to air pollution, particularly traffic related, and dementia risk. This is being picked up by companies, with neuroscience pioneers Biogen, for example, centering their sustainability initiative around the link between harmful emissions, air pollution and brain health with their “Healthy Climate, Healthy Lives” programme. 

• What other issues does this raise you need to be aware of ? What is interesting about the findings from the Francis Crick institute is the identification of a mechanism making the link between PM2.5 and the onset of cancer.

• Let’s start with what are the sources of PM2.5? Taking the UK as an example, approximately 15% comes from naturally occurring sources such as pollen and sea-spray. Man-made sources include domestic combustion, industrial processes, manufacturing and construction and road transportation. Road transportation was estimated to be 13% of PM2.5 emissions in 2020. Historically exhaust emissions were the major source, but improvements in emissions standards and the increase in non-emitting exhausts (most notably EVs) have brought that right down (so some good news - see chart below).

  

• However, 10% of PM emissions are non-exhaust, most notably from brake, tyre and road wear.  In fact, real-world testing experts Emissions Analytics found that tyre wear could actually be 1,000 worse than exhaust emissions. This may be a bigger problem for EVs as their batteries make them heavier than conventional vehicles, increasing wear. Ultimately fewer car journeys, regardless of the drive train will be key, potentially driving demand for cost effective and efficient public transport, ride sharing or light vehicle adoption, including two- and three-wheelers.

• On final thought on this topic. As the mechanism for PM2.5 encouraging cancers has been discovered this raises the question - can existing therapies be repurposed to potentially produce cancer treatments? Professor Swanton thinks so. Novartis tried with their IL-1𝛽 inhibitor canakinumab (an immunology drug sold as “Ilaris” for treating arthritis) but was not successful in three different non-small cell lung cancer trials. A successful repurposing extends the commercial life of a molecule as well as improving productive lives in the community overall. If you are not familiar with successful repurposing of drugs, I suggest you take a hard look at sildenafil.

Energy, methane and orphaned wells

Identifying undocumented orphaned oil & gas wells (US DOE in Clean Technica)

In a nutshell - what does the story say

• Los Alamos National Laboratory in the US is leading a consortium to find abandoned orphaned oil and natural gas wells. Orphaned wells are wells that were never documented on public records and essentially abandoned by their legal owners. Information about ownership and construction has been lost, as has responsibility for methane emissions. The goal of the consortium is to then prioritize these wells for plugging and remediation. 

• The bipartisan Infrastructure Bill provides US$30m funding through the US Department of Energy, Office of Fossil Energy and Carbon Management for this work. There is a five-year time horizon for establishing a framework, developing and testing new technologies, and ultimately deploying those in the field. It is expected that the consortium will rely on drones, lightweight sensors, geophysical techniques and Machine Learning. A workshop to kick things off took place in April 2022.

Our take on this

• Why is this important ? Methane is a powerful Greenhouse gas (GHG) and accounts for approximately 20% of global emissions. However, it is more potent than CO2 at trapping heat, the quantum of which depends on the time horizon that one is looking at. For example, under the IPCC’s 6th Assessment report assumptions, over a 100 year period (the Paris rulebook timeframe) methane is 29x more potent; over a 20 year time period it is 82x more potent given the shorter lifespan of methane in the atmosphere. So, reducing methane emissions is a big deal.

• More than 100 countries (70% of the global economy) have adopted the Global Methane Pledge which is a commitment to a collective goal to reduce global methane emissions by at least 30% from 2020 levels by 2030. That should reduce warming by at least 0.2 degrees C by 2050. The biggest single source of methane emissions are wetlands (specifically freshwater wetlands - note that tidal wetlands actually continually accumulate carbon over their lifetimes and do not release methane) - with the biggest source of anthropogenic methane coming from agriculture. However, combined methane emissions from the energy sector, waste and biomass burning together exceed that. 

• What other issues does this raise you need to be aware of ? There are two main sources of methane from the oil and gas industry. The first is flaring, the burning of excess natural gas that comes from the oil extraction process to prevent pressure build up. The World Bank tracks routine gas flaring globally and estimates that in 2021 144 billion cubic metres of gas was burned through flaring with over 400 million tons of CO2 equivalent emissions. Just for 2021. Solutions include reinjecting the gas into the reservoir, collecting and transporting it through a gas pipeline, or indeed reducing the amount of production. These are solutions that are worth investing in.

• The other source is leakage. This can be from poorly maintained infrastructure either at platforms and wells, storage facilities or pipelines. Two examples of “super-emitter” events are one from a storage facility in Los Angeles in 2015 (almost 100,000 tonnes) and another from a platform in the Gulf of Mexico in December 2021 (40,000 tonnes). In fact, they were only caught by a European Space Agency satellite. The UN Environment Programme launched the International Methane Emissions Observatory in October 2021, recording oil & gas industry emissions.

• Back to the orphaned wells. Given that many will have changed ownership many times before being abandoned, the likelihood that they are in disrepair is high and hence potentially an important source of leakage. Given methane’s near term advanced warming potential, the benefits of prioritising and plugging are clear.  One question is - who pays ? If it’s the government there is the obvious moral hazard issue, and also the time scale for action. But it’s also worth asking if we can find financial incentives to get the private sector to accelerate the process.

Green energy transition could happen faster and more cheaply than we thought

Empirically grounded technology forecasts and the energy transition (Joule)

In a nutshell - what does the story say

• Rapidly decarbonizing the global energy system is critical for addressing climate change, but concerns about costs have been a barrier to implementation. Most energy-economy models have historically underestimated deployment rates for renewable energy technologies and

  overestimated their costs. These issues have driven calls for alternative

  approaches and more reliable technology forecasting methods

• New methods are used to estimate future energy system costs and explore how technology cost uncertainty propagates through to system costs in three different scenarios. Compared to continuing with a fossil fuel-based system, a rapid green energy transition will likely result in overall net savings of many trillions of dollars—even without accounting for climate damages or co-benefits of climate policy.

Our take on this

• Why is this important ? The short answer is that change can happen a lot faster than many investors seem to be expecting. Regular readers will know that this is theme we have frequently covered. Some of this is to do with caution by analysts in forecasting, being too optimistic opens them up to ridicule, whereas caution is only known well after the event. This is a well-known forecasting weakness. But another important factor relates to innovation. As the report says “innovation and technology learning curves produce different outcomes for different technologies”. Some cost curves, such as solar PV, show rapid changes, while others, such a large scale nuclear, barely shift. We suggest that many forecasts assume a steady (ish) state, whereas the reality is often the opposite. Input cost pressures leading to material changes in raw materials used and production processes, often happening very rapidly. These rather busy charts from the report show it all - one to watch, the yellow line is solar PV !

• What other issues does this raise you need to be aware of ? There is a lot to dig into and digest in this report. Plus, we want to do some more detailed analysis of its conclusions, when compared with other similar work we have seen. But, there are some immediate conclusions we want to highlight.

• The first is that, their projected outcome for the fast transition scenario is that short-term storage and electrification of most transport are achieved with batteries, whereas long-duration energy storage (LDES) and all hard-to-electrify applications are served by power-to-X (P2X) fuels. Power to X includes using electricity for hydrogen electrolysis, and then either directly using hydrogen or using it to make other fuels such as ammonia and methane as needed. Again, regular readers will know that we see this as a post 2030 event, but we need to think a bit more about how quickly it might happen, given possibly more favorable tail winds.

• The second is about cost. Their modeling suggests that rapid replacement of fossil fuel technologies by low-cost key green technologies—in power and transport in particular—causes the expected annual energy system cost in 2050 for the Fast Transition scenario to be $514 billion cheaper than that for the No Transition scenario. One issue we want to dig deeper into is how this looks on a capex (investment in infrastructure etc) basis. We suspect high capex over the next decade or so, before lower operating costs start to take the total system cost down. More on this to come.

Finland to achieve electricity independence soon - does this teach us anything useful ?

Finland targets electricity self-sufficiency soon (yle.fi)

In a nutshell - what does the story say

• Finland will be self-sufficient in electricity within a year or two, predicts Minister of Economic Affairs Mika Lintilä. If the Olkiluoto 3 (OL3) nuclear reactor works as planned after the turn of the year, Finland will take a big step towards self-sufficiency. The long-delayed unit is undergoing test runs, and could reach full capacity in December.  In addition to nuclear, wind power is being built in Finland at a record pace. More wind turbines have been built in Finland in the first half of 2022 than in all of 2021. As the end of June, Finland's wind power capacity was approximately 4,000 megawatts. This year wind power could meet 12 percent of Finland's electricity needs – nearly as much as OL3 is predicted to supply.

• For Finland, electricity transmission connections with their Nordic neighbours are crucial. The minister noted that there is plenty of electricity production in northern Sweden that cannot be moved southward due to transfer bottlenecks. So, the “obvious” alternative is to transfer it into Finland. National transmission system operator Fingrid and its Swedish counterpart Svenska kraftnät are planning a new 400 kV transmission line between Muhos, Finland, and the Messaure hydroelectric plant near Jokkmokk, Sweden. When completed in 2025, the line will increase the cross-border capacity between the countries by 800-900 MW in each direction. The most recent interconnector project this autumn is the construction of the Aurora Line electricity transmission connection between Finland and Sweden.

Our take on this

• Why is this important ? We think investors need to be really careful what lessons they draw from the experience of specific countries. Sometimes the lessons are not the obvious ones. In the case of the Nordics, we suggest it should be more about systems wide thinking, rather than a focus on which technology gets used, and a willingness by politicians to be consistent, giving the private sector a firm foundation on which to invest.

• Also note – this article is about electricity, not energy independence, so not the entire picture. There are a whole series of issues tied up in this one story, electricity security (one that is exercising the minds of politicians and regulators a lot more now), the importance of interconnectors and hence the ability to bring in electricity from neighbouring counties (so perhaps not independent after all), and the appropriate combination of generation sources. It’s the last one we want to look at today.

• Finland has the potential to move quickly (over the next few years), not just to regional electricity independence (due to its growing interconnector network) but also perhaps more importantly, to a high percentage of low carbon supply. They have nuclear, hydro (and increasingly wind) from its neighbours and, perhaps more controversially, biofuels. Plus, they have a lot of district heating, and they are increasingly thinking about how their electricity/energy system should work holistically. But as this report highlights, they also have a very energy intensive economy, partly due to export-oriented industries such as forestry, metal, machinery, and shipbuilding.

• An important question that this raises, is what can what we learn from Finland (and the other Nordic countries) that can be applied to other regions ? We think the lessons are not the ones most people think.

• What other issues does this raise you need to be aware of ? We have two main frustrations that emerge when we read the reports and plans that discuss 100% renewable electricity and electricity independence. The first is an apparent obsession with just the generation source, so wind and solar or nuclear, but not thinking enough about the wider system. The second is an implied expectation that there will be a one size fits all solution. This is not the case; each country or region will need to find a generation mix that works for their particular situation.

• On generation source. We get that building more low carbon and renewable electricity generation is important. That is not the focus of our criticism. Our point relates to the need to, in parallel, enhance and strengthen the electricity grid networks, and modify the regulatory frameworks. These measures will allow sufficient renewable generation to be connected, and help to deliver the necessary shift from a mainly fossil fuel-based system to one dominated by renewables. This is going to be both complicated (we need to effectively unwind our existing system, while simultaneously creating a new one) and capital intensive (we need to quickly build battery storage, interconnectors, and probably “back up sources of generation that are callable on demand ie that can start up at short notice when we need them). Ignoring these challenges is going to make rolling out renewables and low carbon electricity at scale, a real challenge.

• Not one size fits all. We read a lot of articles etc that say, look at country XX, they have transitioned to higher levels of renewables, this shows we can do it to. Don’t get us wrong, we think learning from how other countries have moved forward is important. But the lesson isn’t “let’s do what they did”, its let’s look at what resources we have and “apply a whole system approach”.

• To stick with in the Nordics (all from Ember data explorer) , Norway has nearly 100% electricity generation via renewables (but they have a lot of hydro), Denmark only uses fossil fuels for 18% of their generation (they have a lot of wind and bio fuels plus good interconnectors into, among other sources Norwegian hydro), Sweden, like Norway is nearly 100% low carbon (but they have a lot of nuclear & hydro) and Finland is running at just under 15% from fossil fuels (again nuclear & hydro are big).

• What are we trying to say here … if, as a country, you don’t have either nuclear or hydro (and most don’t), your challenge is very different. It’s still possible but let’s not pretend its straightforward and/or will be cheap. And even if you do, then the experience of France on nuclear, and the questions around drought and its impact on hydro generation, mean we need to think more widely about risk and resilience in the future.

• Finally, to be clear, on a personal level, we are not big fans of nuclear. This is based largely on our experiences as an engineer focused on the performance of structures in earthquakes and other adverse events. So, we worry mostly about the safety of storage solutions rather than operational risk. But despite this, we understand that for many countries, nuclear could be part of the mix. A detailed discussion of this will have to wait for another day.

Yet another mine tailings dam collapse - this time in South Africa

Aerial video of the damage caused at Jagersfontein mine as tailings dam collapses (MiningZimbabwe)

Our take on this

• Why is this important ? We discussed only last week, in issue 39, the potential insurance implications for the mining industry of collapses of mine tailings dams, but we should also never forget the human and environmental costs. We know that this is an issue that a lot of work is being done on. Please support groups such as The Investor Mining and Tailings Safety Initiative, which is led by the well-regarded Church of England Pensions Board and the Swedish Council on Ethics, who have created a coalition of more than 100 investors.

One last (positive) thought - do we finally have a malaria vaccine ?

New Malaria vaccine is world changing (BBC)

In a nutshell - what does the story say

• A new malaria vaccine, R21, developed by the University of Oxford has had promising results from a trial of 409 children in Burkino Faso. Three initial doses followed by a 12 month booster gave up to 80% protection. The results of a larger trial of 10x the number of children is due before the end of 2022. Final approve should come from a successful trial outcome. Serum Institute of India, the world’s largest vaccine manufacturer has been lined up to manufacture more than 100m doses per annum.

• The Oxford University Scientists claim that this new vaccine is more effective and can be manufactured on a greater scale than RTS,S the GSK vaccine given the go ahead by the WHO in Africa last year.

Our take on this

• Why is this important ? According to the WHO, there were an estimated 241 million cases of malaria globally in 2020, resulting in 670,000 deaths. 95% of cases and 96% of the deaths were in Africa. Even more shocking, of those malaria deaths in Africa, 80% were children under 5 years old. Half of malaria deaths worldwide are accounted for by Nigeria, the DRC, Tanzania and Mozambique. So, it is clear the macro impact on the continent from mass reduction in those deaths and improved health outcomes could be material.

• Historically efforts to deliver vaccines at scale, particularly in regions like Africa, are hampered by issues of heat, dispersion of the population, and a lack of transport infrastructure. In particular cold chain logistics are vital as vaccines, such as RTS,S, need to be stored at between 2oC and 8oC. Possible solutions include, renewable energy powered local refrigeration, drone delivery or even improving the thermostability of the vaccines themselves. Something for ethically minded investors who really want to make a difference on the ground to get involved with at a practical level.