26 Nov 2021
Jon Wallace discusses innovations in detecting methane and the importance of an agreement by major nations to reduce emissions of this harmful gas.
One of the important agreements to come out of COP 26 was a pledge to sharply reduce methane emissions. More than 100 countries joined a U.S.- and EU-led effort to cut output of this damaging greenhouse gas by 30% by 2030, which would be a significant step in stemming climate change.
The Global Methane Pledge covers countries representing nearly half of global methane emissions and 70% of the global economy. Some major producers including Russia, India and Iran didn’t sign, however.
The focus on methane highlights the challenges and opportunities of an often-overlooked climate change issue. Carbon emissions are more widespread, but methane, in the main stemming from oil and gas, coal, and agriculture, is a more potent greenhouse gas (absorbing much more heat from the sun) and has contributed to about a quarter of the rise in global temperatures since the Industrial Revolution.
Reducing methane emissions is crucial to reach the Paris Agreement target of limiting global warming to a maximum 1.5 degrees above pre-industrial levels. As methane’s warming effect is shorter-lived than carbon dioxide, tackling its emissions would have an immediate effect. The Pledge is not a silver bullet, but it marks a step-up in addressing this key challenge.
Technology has quite literally put the issue of methane emissions on the map. Until recently, engineering estimates were the only basis for most benchmarks on methane levels. Satellite technologies now enable real-world monitoring, and with concerning results. Last autumn, European Space Agency satellites detected huge plumes of methane leaking from the Yamal pipeline that carries natural gas from Siberia to Europe, Reuters reported.
Researchers are finding leaky oil and gas industry infrastructure is responsible for more of the methane in the atmosphere than previously thought. An International Energy Agency paper1 published in September says that energy producers’ downstream operations, which includes distribution, refining and storage, generates 20% of all methane emissions. It cited researchers using an optical gas camera who detected methane leaks at 100 sites in Europe.
In the US, this number is estimated to be 30%, leading to the US government unveiling a plan to cut methane emissions with a focus on oil and gas producers. These regulations would take effect as early as 2023 and aim to reduce methane from oil and gas operations by 74% from 2005 levels by 2035, according to the Environmental Protection Agency.
*Source: IEA, all rights reserved. Chart data as at Nov. 2021
Halting these emissions requires exacting measures, such as monitoring lengthy pipeline infrastructure and repairing equipment that is often difficult and expensive to access. At a time when the energy transition is in sharp focus, we see this series of developments as making an important contribution to highlighting an often-overlooked advantage of a pivot towards clean energy sources.
In the same way that technology has helped to pinpoint the challenges, we see technology and innovation as key to addressing them. For us as investors, the scale of change required to reverse global warming is creating significant opportunities to support environmental solutions companies, which provide products and services critical to achieving sustainability targets. It is becoming ever more evident that these solutions will spread widely and to as-yet unpenetrated sectors of the global economy.
The Global Methane Pledge has highlighted the importance of tackling all sources of methane, including from agriculture. Over many years, we have monitored innovations looking to address climate challenges in this notoriously hard to tackle sector. In a paper prepared for the WWF in 20092, for example, we highlighted that enteric, or intestinal, methane emissions from beef and dairy herds could be reduced by up to 15% by a novel feed additive that was then still in lab-stage development and included this in an emissions reduction pathway for the sector for 2020 and beyond.
We have been encouraged by the commercialisation of innovations aimed squarely at reducing the environmental impacts of dairy and red meat, while recognising they are only one part of a solutions mix that also includes changing diets. This feed additive has received regulatory approval for use in Brazil – one of the five biggest global methane polluters and a signatory of the Pledge – and has an efficacy of 30% for dairy cattle, a step up from our original estimates.
It was developed by Dutch nutrition group DSM – a long-standing holding in the portfolio – which announced during COP 26 that it would dramatically expand production of the additive at its facility in Scotland. In our view, this marks a further example of how environmental solutions can both embolden and benefit from regulation over time, providing a fertile landscape for long-term stock picking.
1https://www.iea.org/commentaries/the-case-for-regulating-downstream-methane-emissions-from-oil-and-gas
2‘Strategies for Reducing the Climate Impacts of Red Meat/Dairy Consumption in the UK’ 2009 Wallace, Jackson et al (WWF/Imperial).
The value of active minds: independent thinking
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.
Important information
This document is intended for investment professionals* and is not for the use or benefit of other persons, including retail investors.
This document is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the author at the time of writing and are not necessarily those of Jupiter as a whole and may change in the future. Holding examples are for illustrative purposes only and are not a recommendation to buy or sell.
Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given.
Issued in the UK by Jupiter Asset Management Limited, registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. Issued in Hong Kong by
Jupiter Asset Management (Hong Kong) Limited (JAM HK) and has not been reviewed by the Securities and Futures Commission.
No part of this document may be reproduced in any manner without the prior permission of JAM, JAMI or JAM HK.
*In Hong Kong, investment professionals refer to Professional Investors as defined under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong).and in Singapore, Institutional Investors as defined under Section 304 of the Securities and Futures Act, Chapter 289 of Singapore. 28307