Business bridles at cost of green transition

Today’s top stories

• Google-owned YouTube is in talks with record labels to license their songs for artificial intelligence tools that clone popular artists’ music, hoping to win over a sceptical industry with upfront payments.   

• US companies have been able to slash borrowing costs on almost $400bn of debt this year due to investor appetite for junk loans. Even before the Federal Reserve cuts interest rates, borrowers in the leveraged loan market have benefited from the equivalent of two quarter-point cuts, said Goldman Sachs.

• Global “food wars” could be on the way as geopolitical tensions and climate change push countries into conflict over waning supplies, according to one of the world’s largest agricultural commodity traders. “We have fought many wars over oil. We will fight bigger wars over food and water,” said the chief executive of Singapore-based Olam Agri.

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Good evening.

As our special report highlights today, global clean tech investment may be booming — but it’s still less than half the estimated annual amount needed by the early 2030s to achieve the goal of net zero. And businesses have begun to balk at the additional costs associated with the move.

Total investment is set to hit $2tn this year, according to the International Energy Agency, which is almost twice the amount being spent on fossil fuels but less than half the estimated annual total of $4.5tn that is needed. Fossil fuels still accounted for 81.5 per cent of global energy consumption in 2023, slightly down from 82 per cent in 2022 and 86 per cent in 1995.

The FT report follows a flurry of news stories highlighting the obstacles on the path to cleaner energy.

Today, we report on Lufthansa adding a green surcharge on tickets to cover the “steadily rising additional costs” of new environmental fuel requirements. The Frankfurt-based carrier, which also runs Eurowings, Swiss and Austrian Airlines, said passengers would face an extra fee of between €1 and €72 per ticket from next year.

United Airlines, the third-largest US airline, has meanwhile said that the use of sustainable jet fuel — made from sources such as recycled cooking oil — will only take off if the carriers get buy-in from the oil industry, including allowing access to pipelines. 

The transition to cleaner motoring is also proving more difficult than envisaged. Vauxhall owner Stellantis yesterday threatened to halt UK production unless the government did more to stimulate sales of electric cars. Chief executive Carlos Tavares has previously called Britain’s EV policy “terrible” and in danger of bankrupting carmakers. 

Other car companies are scrambling to adjust, including Volkswagen, which, until yesterday’s deal with software company Rivian, was looking at an “extinction” level event as low-priced Chinese EVs flood into Europe.

Associated costs in the switch to clean energy are also rising. A new study for example, says that at least $10tn of insurance cover will be needed to reach net zero, putting “unprecedented structural pressures” on the industry to provide cover across the energy, road transport and building sectors between 2023 and 2030.

In the meantime, governments are coming up with new ways of preparing for and financing the transition. 

China, as well as churning out electric cars, is exporting huge amounts of products such as lithium batteries and solar energy kit, even as it gets caught up in disputes over tariffs. And in the UK, the opposition Labour party is planning a state-owned energy company that will lead the development of green energy technology should the party win next week’s general election. Labour is also set to ease planning restrictions on onshore wind farms.

The most novel initiative, though, comes from Denmark, which plans to charge farmers almost €100 a cow per year in the world’s first carbon tax on agriculture. Livestock accounts for 11 per cent of global emissions — almost two-thirds of which is from cattle.

Read the Special Report: Energy Transition

Need to know: UK and European economy

As the UK election edges closer, consumer editor Claer Barrett talks to guests about the potential impact on your personal finances in the Money Clinic podcast.

The EU’s 27 leaders gather in Brussels tomorrow for a crunch summit on the bloc’s top jobs. France and Italy are at loggerheads over a senior economic post in the European Commission covering trade, competition and industrial policy. Italian Prime Minister Giorgia Meloni warned commission chief Ursula von der Leyen that she only had a “fragile majority” for a second term unless a deal on the top jobs took into account Rome’s demands.

Bulgaria and Romania have failed the economic tests needed to adopt the euro, marking a setback in the EU’s eastward expansion. The European Central Bank and the European Commission said the two countries — which are among the poorest EU members — had inflation that was too high and institutions that were too weak to tackle corruption and money laundering.

Need to know: global economy

New tariffs announced by US President Joe Biden and proposed by his possible successor Donald Trump would push up inflation and damage the US freight sector, industry chiefs have said. US national editor Edward Luce has more on the economic consequences of a Trump win.

Top US Federal Reserve official Michelle Bowman said immigration and heavy government spending could undo progress on inflation and lead to interest rate rises.

Legislative paralysis in Washington could trigger a global tax war, as countries prepare for the likely failure of a landmark agreement overhauling taxation of big multinationals which has a self-imposed deadline of June 30.

The Bank for International Settlements, which operates banking services for the world’s central banks, said artificial intelligence would have a profound impact on the global financial system.

A minimum tax on the world’s billionaires would raise up to $250bn a year, according to a paper commissioned for the G20. It recommends individuals with more than $1bn in total wealth pay a minimum amount of tax equal to 2 per cent of their wealth. China meanwhile is losing many of its millionaires to the US.

Kenya’s President William Ruto ceded to popular pressure and dropped a contentious tax-raising bill after mass protests left at least 22 dead.

Brazil’s financial markets have plunged as investors fret about the spending plans of leftwing President Luiz Inácio Lula da Silva’s government.

Need to know: business

The potential blockbuster listing of fast-fashion group Shein is under fire from a human rights group, which alleges that the Chinese company is using minority Uyghur people as forced labour.

Wegovy, Novo Nordisk’s blockbuster weight-loss drug, has been approved in China, opening a potentially huge new market in a country with growing rates of obesity.

Exxon’s Stabroek project in Guyana is the fastest-developed and most profitable offshore oil project of the century, with 11bn barrels of oil forecast to be pumped out within the next two decades. Environmental and governance concerns, however, are mounting: a deep dive explains.

Progress for women in the historically male mining industry is being threatened by the “Andrew Tate” effect. Some men in the sector have started using the acronym DEI — diversity, equity and inclusion — in a derogatory reframing: “Didn’t Earn It”.

Afghanistan’s Taliban has managed to turn around the country’s mining industry, issuing hundreds of deals to tap gold, gemstones and minerals, as our latest visual investigation explains.

The world of work

A £24mn trial offering commuters discounted off-peak fares into central London on Fridays has failed to increase passenger numbers. The trial was launched by London mayor Sadiq Khan to boost passenger numbers and the wider economy in the wake of the pandemic.

The hype around generative AI has spooked some people in the creative industries — but just how worried should artists, designers and musicians be about new developments? Listen to the new Working It podcast.

Some good news

The first UK trial of deep brain stimulation for children with epilepsy has begun, using a rechargeable device mounted on to the skull and attached to electrodes deep in the brain to reduce seizure activity. Early results showed the patient’s daytime seizures were reduced by 80 per cent.