Commercial Supremacy: The covert end state behind the net zero target

In western mythology, dragons are destructive, fire breathing, rampaging flying dinosaurs with a tendency to chomp at the nearest tin-clad knight.

In Chinese mythology, however, dragons are protectors and guardian spirits. Much as Dryads to trees and Naiads to lakes in western myth, a dragon is associated with specific locations or features rather than being free-ranging forces. The pearl represents the item, person or location being protected.

Looking at the steps China is taking on net zero target, can we say that the dragon is protecting the earth's future from an environmental catastrophe? If not, what is the motive here?

The Chinese Dragon, hankering to become a soft-power house in the new century, outspent the U.S. by nearly 2 to 1 on energy transition-related investments, between 2010 and 2020 according to the Bank of America data. It is by far the world leader in the deployment of solar and wind power. In 2019, more electric vehicles were sold in China than the rest of the world combined, and 98% of the world’s 500,000 electric buses still operate in China.

On the other hand, China’s coal infrastructure is immense and still growing. Although its coal consumption in 2019 fell down to around 58%, it still consumes more coal than the rest of the world combined. Not surprisingly, countries at COP26 only agreed a weaker commitment to "phase down" rather than "phase out" coal, after a late intervention by China and India. And on methane; a?plan to cut 30% of methane emissions by 2030?was agreed by more than 100 countries in Glasgow, but the big methane emitters China, Russia and India haven't joined this plan.

The U.S. is also very well aware of the fact that energy independence and supply chain control are also at stake with the geopolitical balance. That’s why they would look to ramp up legislation, innovation and?capital flows into renewable energies?such as wind, solar, batteries and hydrogen in 2022.

The U.S. will also see a ramp-up in electric cars. Today, give or take, 50% of all oil in the world is allocated to the transportation market, and cars is a big part of it. So, whoever will?control EVs and EV technology?will definitely have a big advantage going forward.

Please also note that, the economic impact of climate could reach $69 trillion this century, and energy transition investment needs to rise up to $4 trillion per year.

We know that to achieve commercial supremacy over one another, both superpowers are in a constant clash over trade, technology, industrial espionage and capital markets, but in the next decade, we will see the U.S. and China, turning their attention to climate change as the next path to commercial supremacy.

And I think, pressure points in this new kind of war will include:

• Supply chain dominance,
• Domestic-focused manufacturing policies,
• Human rights-related laws and
• Carbon-related trade tariffs.

Let's now carry on with putting global events in perspective. If you would like to get a notification on new issues of The Executive Perspective, please feel free to subscribe.

1. Management Strategy

Due or die: Where to start achieving the net zero target for a company?

First things first, the momentum has shifted for the companies…

Net-zero commitments are the new norm now. And, it is clear that the climate commitments launched in Glasgow will reshape the agenda for global business.

I also think that net-zero commitments are outpacing the formation of supply chains, market mechanisms and financing models which we need to redefine to smooth the world’s decarbonization pathway.

For businesses, these conditions will create opportunities to innovate and to lead a coordinated action by industry peers, value-chain partners, capital providers, and policy makers, politicians in other words. They also create an added risk that commodity prices definitely will spike.?

If I can summarize in just three bullets on what companies should be doing to get a competitive edge on all of these;

• I have to put “Planning” as the first step. Companies want to achieve net zero but what I have seen is that relatively few businesses have yet to make a clear, detailed plan on how they will achieve net zero. Such plans, of course, will vary in their specifics, but well-thought ones will feature certain elements like; emission targets for Scopes 1, 2, and 3, a strategic view of climate risks and opportunities, an assessment on the spending of transition capital that will be required to reduce emissions and a program for building capabilities to monitor external conditions.
• “Greener materials” should be the second step. Securing the greener materials is what companies should be focusing on now, because it will mitigate the supply chain risk amid shortages and price volatility. For example, as demand increases for materials with low emissions intensity, such as green steel, production capacity may not expand quickly enough to keep the pace, at least in the near term. That’s why some businesses are locking in purchasing contracts for commodities such as green steel, as we speak.
• The third step, in my opinion, should be “Transparency”. Because, financial institutions and governments are asking companies to disclose more information about their exposures to climate risks. This is a requirement now on both stakeholder side and also on corporate social responsibility side. Therefore, companies should be prepared for more transparency about their exposures to climate risks and their climate-action plans.

2. Geopolitics

What is "anti-coercion" law and How it can alter the way EU does business?

China, several days ago, has told multinational companies to cut ties with Lithuania or face the risk of being shut down in the Chinese market because Taiwan?opened a diplomatic office in Vilnius, Lithuania’s capital despite China’s objection.

China claims the island as its own territory and has been piling up the pressure on countries which try to develop relations with Taiwan. Lithuania is not the only country that Taiwan has offices in. But many countries in Europe, and offices in the United States use the name “the city of Taipei” to avoid association with the island itself.

As a response, a draft of a proposed EU “anti-coercion” instrument was distributed in Europe this week.

The new laws would give the EU Commission extraordinary powers to target countries that “interfere in the legitimate sovereign choices” of the EU or any of its member states (which includes Lithuania) by applying or threatening to apply measures affecting trade or investment.

Should the laws be approved the commission would be able to unilaterally impose tariffs, suspend access to its markets, impose quotas or licenses and limit access to government procurement programs and investment markets. It could also prevent the countries from sourcing some goods from Europe, remove intellectual property protections or impose quality filters on access to EU food markets.

A note here; this law will be applicable to all countries, not only to China, which makes it a must for companies doing business in EU to follow up this legislation and its implications.

3. Manufacturing and supply chains

Container Chaos: What are the real reasons behind the global container shortage?

Thanks to the pandemic, the shipping container is now at the center of?the global supply chain crisis which has interrupted the delivery of everything from?medical supplies to?holiday gifts. Because of widespread manufacturing delays and bottlenecks, there aren’t enough of these boxes in the right place and at the right time.

There are also too many containers at shipping terminals, which is clogging up ports and blocking more cargo from arriving. Exporters, meanwhile, are?struggling to find empty containers?they would normally use to send their products to customers abroad. These shipping container problems are continuing to pile up as the larger manufacturing system they helped enable also struggles to adapt.

The disruption has gotten so bad that some US politicians want the government to take on a bigger role in regulating shipping.

Last week, a bipartisan group of House members?passed a legislation, Ocean Shipping Reform Act of 2021, H.R. 4996,?that would allow the Federal Maritime Commission, the US’s international ocean transportation agency, to pressure shipping companies to prioritize empty containers for American manufacturers and farmers.

The bill deals with the fact that Asian ocean carriers “unfairly discriminate against American cargo.” Evidently, the foreign carriers drop off their overseas goods in American ports and then turn tail back to Asia in order to pick up more goods to bring back to the U.S. They don’t bother to load up American goods to take back to foreign ports.

The bill would be the biggest update to shipping regulations in 30 years if signed by the president.

4. Energy Security

Eyes wide shut: Will the U.S. continue to turn a blind eye to Iran-China oil trade?

China’s imports of Iranian oil have reached more than half a million barrels per day for the last three months.

Chinese importers feel that finding and buying cheap oil worths the risk of getting sanctioned by the United States. The current US sanctions on Iran imposes that any organization importing Iranian oil would be cut off from the U.S. economy.

So far, the Biden Administration has not enforced any sanctions on Chinese organizations for their dealings with Iran. This could be because there has been some hope for returning to negotiations for the 2015 Iran nuclear deal that would allow Iran to export its ol again.

After record high imports in May, there was a dip in June and July as importers filled their quotas. Just after the Chinese government released fresh quotas, importers lined up for cheaper Iranian crude again. Iran’s oil exports have reached $1.3 billon a month, most of which goes to China. The oil exports provide a much needed additional revenue for Iran.

The talks on the Iran nuclear deal is set to restart soon, which could end U.S. sanctions and allow Iran to openly sell its oil.

China has imported 660,000 bpd of Iranian oil in August, 545,000 in September and 470,000 in October.

5. Legislation

The Executive Order that sets the stage: U.S. Government officially takes on climate crisis.

US President Joe Biden?signed an executive order last week to make the federal government carbon neutral by 2050, through a sweeping plan that will transform how the federal agencies get energy, carry out daily functions, engage with?businesses, and treat the environment.

The plan is the latest effort by the Biden administration to catalyze a broader shift toward clean energy, zero waste, and environmental regeneration throughout the American economy.?

With $650 billion in annual spending on goods and services, the federal government will invest in new technologies, support clean energy providers, and reorient local economies around climate action, according to the announcement.?

The Biden administration has also ordered U.S. government agencies to immediately stop financing new carbon-intensive fossil fuel projects overseas and prioritize global collaborations to deploy clean energy technology.

The policy defines "carbon-intensive” international energy engagements as projects whose greenhouse gas intensity is above a threshold lifecycle value of 250 grams of carbon dioxide per kilowatt hour and includes coal, gas or oil.

It also bans any U.S. government financing of overseas coal projects that do not capture or only partially capture carbon emissions, allowing federal agencies to engage on coal generation only if the project demonstrates full emissions capture or is part of an accelerated phaseout.

It exempts carbon-intensive projects for two reasons: they are deemed to be needed for national security or geostrategic reasons or they are crucial to deliver energy access to vulnerable areas.

6. Sustainability Strategy and Decarbonization

EU taxonomy: A risky attempt to brand gas and nuclear as "green".

The European Union considers giving some nuclear and natural gas projects a green investment label as a temporary measure to help make smoother transition from fossil fuels to renewables.

One consideration is to classify gas plants that replace coal and emit no more than 270 grams of CO2 equivalent per KWh as sustainable investment. Such projects have to be finalized by 2030 to receive the label.

The EU’s investment classification system, or taxonomy, is watched closely by investors worldwide and could potentially attract billions of euros of investment to help green transition.

The taxonomy, while covering almost every economic sector, aims to guide investors to green projects. The decision on including nuclear and gas was delayed in April after some investors and governments warned the European Commission that such a move could jeopardize the credibility of the system.

On the other hand, giving temporary green labels to gas projects could ease removing coal-based district heating systems especially in Eastern Europe.

The inclusion of nuclear energy could help attract private investment from countries like France and Czech Republic, which plan to use nuclear power in their transition to net zero emissions.

7. Rare Earth Minerals and Mining

Mining goes transparent: Giants including PHP and Rio Tinto agree to disclose taxes.

The International Council on Mining and Metals (ICMM) said several days ago, its members agreed to disclose all mineral development contracts and related taxes from January 2021.

The council’s 29 members include the two biggest miners of the world, BPH and Rio Tinto.

To improve transparency across industries, regulators worldwide have been looking to increase oversight of how much tax the public companies pay. In October, 136 nations agreed to implement a 15% minimum tax rate to big companies, making it harder for them to avoid taxation.

The ICMM also stated that its members paid a sum of $23.7 billion in taxes in 2020, a 5% increase from 2019.

Making contracts and related taxes public could decrease corruption and create a fairer competition between businesses. Mining companies occasionally face corruption, political instability and unclear regulations in some resource rich countries they operate. Therefore, business in those countries are investigated more closely by international authorities.

8. Defense and Armament

Mojave is in the air: The evolution of UAS continues with more fire power.

General Atomics Aeronautical Systems, Inc. is unveiling a new Unmanned Aircraft System called Mojave, named for one of the harshest and most austere areas the world, where deadly rattlesnakes and horned lizards adapt to survive the extreme forces of nature.

Mojave is based on the avionics and flight control systems of MQ-9 Reaper and MQ-1C Gray Eagle-ER but is focused on short-takeoff and landing (STOL) capabilities and increased firepower. It features enlarged wings with high-lift devices, and a 450-HP turboprop engine.

Mojave provides options for forward-basing operations without the need for typical airport runways or infrastructure. It can land and takeoff from unimproved surfaces while also retaining significant advantages in endurance and persistence over manned aircraft.

The payload capacity is 3,600 lb. (1,633 kg) and Mojave can carry up to 16 Hellfire or equivalent missiles. Mojave can be equipped with a sensor suite including Electro-optical/Infrared (EO/IR), Synthetic Aperture Radar/Ground Moving Target Indicator (SAR/GMTI) and Signal Intelligence (SIGINT) to support land or maritime missions.

That's all from this edition of The Executive Perspective and hope to see you again next week. Please feel free to comment or share as you wish.

Cheers.