Memanat

Main Menu

  • Arbitrage
  • Chain Of Comparative Advantage
  • Multinational Netting
  • Price Stabilization
  • Money Management

Memanat

Header Banner

Memanat

  • Arbitrage
  • Chain Of Comparative Advantage
  • Multinational Netting
  • Price Stabilization
  • Money Management
Arbitrage
Home›Arbitrage›Climate trade-off: cost of carbon versus capital

Climate trade-off: cost of carbon versus capital

By Anthony Drake
May 4, 2022
0
0

The cost of capital is rising not only in the West, but also in India, as signaled by the sharp rise in our central bank’s main policy rate on Wednesday. Like the US Fed, our Reserve Bank has been caught behind the inflation curve and had to tighten credit in the name of price stability; local banks must now pay 4.4% on funds taken from its repo window. Lenders should raise their own rates in response. Yet what matters in business is not just the cost of borrowing, but how easily that rate can be beaten by annual returns. By this calculation, large investors aren’t exactly lacking in opportunity. Higher debt, for example, is unlikely to deter Indian cement companies competing for Holcim’s assets in India. Around 65 million tonnes of cement capacity could be up for grabs as the Swiss major reorganizes its portfolio to offload what doesn’t fit with its 2025 climate adaptation plan. Adani, JSW, Dalmia and Aditya groups Birla would be in the fray for Holcim factories run by Gujarat Ambuja and ACC, each producing a product whose demand is expected to swell as the emergence of our economy materializes. While such an acquisition is a perfectly legitimate game for profit expansion, it is also part of a trend that has been flagged as a global concern: climate arbitrage.

Making cement involves calcination, a process not only laden with carbon emissions but also difficult to decarbonize on a large scale. Its value chain also has other dirty processes, and while pollution controls exist, this fundamental difficulty has prompted rethinking for companies exposed to regulatory rebuke and shareholder repudiation. As the imperative to go green gains global investor approval, new standards take effect and corporate targets are set for emissions caps, a global asset reshuffle to carbon-intensive began. So far, much of it has gone into the coal mining, oil and gas sectors. By one estimate, oil majors offloaded nearly $200 billion of fossil fuel assets between 2015 and 2020, with more divestments to come as companies based in Western jurisdictions chart clean paths to the profitability. Other sectors seem headed in the same direction. Buyers of high yield and high yield assets are not hard to find. As long as the products produced are still in daily use, the bargains would likely be available to those with less climate pressure. In theory, a global market for carbon credits could iron out the value vagaries of this transition, but none has yet emerged. Amid a patchwork of varying climate rules and investor sensitivities, what is emerging instead is a chance to exploit those loopholes. What is risky for one investor may be less risky for another. This makes room for big business.

BlackRock chief Larry Fink expressed specific arbitrage concern last year after the US-based investment firm put its portfolio on watch for climate risks. The private sales that took companies away from open markets, he argued, would deepen the planet’s crisis by increasing opacity rather than declining emissions. The basic problem, however, stems from green plans that preempt the reality of use, which disrupts supply and demand for assets and distorts valuations. Game-theory solutions call for collective action, with a cap-and-trade system based on carbon pricing. Politics buffs have called for a global framework to stop a reshuffling of assets that doesn’t leave the planet safer. Even when bargains appear, the cost of carbon must enter into our rate versus return calculation.

To subscribe to Mint Bulletins

* Enter a valid email

* Thank you for subscribing to our newsletter.

Related posts:

  1. Wind manufacturing in Victoria has doubled in 4 years – PV Journal Australia
  2. Oxford Industries (NYSE: OXM) upgraded at Zacks Funding Analysis
  3. Brief curiosity in Aspen Group, Inc. (NASDAQ: ASPU) will increase 27.1%
  4. How capital good points are taxed and what Biden would possibly do

Recent Posts

  • HF Foods Group Inc (NASDAQ:HFFG) shares fall 10.5%
  • Insta360 and Leica team up on 6K 360 camera with 1-inch sensors
  • Mthuli Ncube bans discounts on US dollar sales; says that the use of the interbank rate for pricing will be legislated
  • Extruded Nets Market | Upcoming Trends, Growth Drivers, Opportunities and Challenges in the Global Industry to 2028 – Designer Women
  • Market for rare biomarker sample collection and stabilization is expected to reach US$43.33 billion by the end of 2031-Miltenyi Biotec, Roche, Veridex, QIAGEN, STRECK, INC., Creatv MicroTech, Genetix, Creative-Bioarray, Amgen

Archives

  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • October 2020
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • March 2017

Categories

  • Arbitrage
  • Chain Of Comparative Advantage
  • Money Management
  • Multinational Netting
  • Price Stabilization
  • Terms and Conditions
  • Privacy Policy