ESG Essentials: EU commission backs ambitious emissions goal and slowing oil demand growth

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Oil demand growth on a downturn

The International Energy Agency (IEA) has predicted that global oil supply will exceed demand growth in 2024, with consumption expected to halve from 2.3 million barrels per day (bpd) in 2023 to 1.2 million bpd in 2024.  

Economic challenges, stricter efficiency standards and the rise of electric vehicles are contributing to the deceleration in demand.

China is expected to lead the world in oil demand growth, accounting for nearly 60% of the year’s total, while the IEA notes a surge in oil supply primarily driven by record-setting output from the United States, Brazil, Guyana, and Canada, resulting in a new high in the world’s oil supply for 2024.

Despite the positive supply outlook,  the IEA expressed caution, warning that conflicts in the Middle East, particularly disruptions in oil flows through the Red Sea and the Suez Canal, could pose serious threats to the market. The agency also points out that a rising number of ship owners are diverting course from the Suez Canal, causing delays in oil and commodity deliveries.

Out with the old, in with the new: Petrochemical oversupply makes virgin plastic cheaper

Due to a surge in petrochemical production in China and the US, a global oversupply of industrial chemicals used to make plastics has led to a significant drop in the price of virgin plastic materials. 

The graph shows the sharp decrease in the price of high-density polyethylene (HDPE) spot prices. HDPE is a plastic commonly used in products such as toys and plastic bags. 

Before 2019, recycled plastic held a cost advantage over virgin materials. But this has now shifted, meaning virgin plastic is more economical to use than recycled alternatives. This poses significant challenges for manufacturers in the recycled plastic industry as they struggle to remain competitive.

Not only are manufacturers facing problems, but the oversupply creates challenges for companies aiming to reduce their reliance on single-use plastics against a backdrop of stricter regulations and government commitments to curb plastic waste pollution. 

European Commission backs ambitious goal of 90% emissions cut by 2040

The European Commission is set to recommend the EU reduce its greenhouse gas emissions by 90% by 2040 (from 1990 levels). The EU is drafting its first climate target to bridge the gap between existing goals to cut net emissions by 55% by 2030 and reach net zero by 2050.

The new target will test Europe’s appetite to continue its ambitious green agenda – which is currently facing pushback from some governments and industries concerned about costs.

The European Commission will present its recommended target for 2040 on the 6th February, outlining the mounting cost of climate change in Europe and the benefits the target could yield. It will also focus on supporting the competitiveness of European industries and twinning public and private funding to support low-carbon manufacturing projects and jobs.

In previous years, EU climate targets have required unanimous approval from the 27 EU country leaders. Some countries have shown openness to a 90% emissions reduction target, while others are less willing, deeming the target unrealistic. Fixing the target into law will fall to the new EU Commission once elected in June 2024.

Climate-tech fundraising drops to a 3-year low

The last quarter of 2023 was the worst for global climate-tech fundraising since 2020, with companies in the sector raising 31% less than the previous year. The size and number of deals shrunk across all stages of the fundraising cycle as investors faced rising interest rates and the risk of recession.

The rate of companies that graduate from one fundraising level to another has steadily declined since early 2022. This has left less capital available for new ventures and fewer climate-tech companies reaching an exit.

Acquisition will be the most promising path forward, principally by large industrial or energy companies, many of which are under pressure to decarbonise and seek ready-made solutions.

Breaking the current pattern will require investors to be more willing to take first-mover risk, while more mature companies will need to prove they are worth the investment. 

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