Commodity Tracker: 5 charts to watch this week

As the COP26 climate meeting gets underway in Glasgow, Scotland, this week's Commodity Tracker focuses on energy transition trends from the energy and raw materials markets. Renewable power capacity additions are increasing swiftly, but still insufficient considering fast demand growth. Plus, rising carbon credit prices, China's steel sector emissions, New York's decarbonization goals and hydrogen's place in Russia's energy strategy.

1. Global renewable power build-out lags demand growth

What's happening? Wind, solar and hydro capacity additions hit an all-time high in 2020 with about 260 GW installed globally. China accounted for about half the additions, the US for roughly 15% and the EU for 13%. However, when it comes to generated output, renewables growth represents only about one-third of 2021 power demand growth. With about 7% growth, power demand has been very strong this year due to economic growth tied to re-opening after widespread lockdowns. But current renewables growth trends are also insufficient to meet growing power needs in the longer term, especially as electrification picks up, from data centers to electric vehicles to heat pumps.

What's next? Cost pressures tied to increasing raw material prices and supply chain bottlenecks have been a concern for renewables development in the short term, while policy uncertainties might dampen development in the years to come. Scaling up clean power is one of the main objectives of COP26, together with an acceleration of coal phase outs. As net-zero targets have proliferated, more action is needed in the medium term to make sure targets are met. Also, increased financial support from developed nations to developing ones could help further mobilize resources to increase renewables uptake, especially in the least developed nations, which often have large resource availability but lag in renewables uptake.

2. Carbon credit prices rise in 2021 with eyes on COP26 for global deal

What's happening? Carbon credit prices in the voluntary carbon market have increased significantly in 2021 as companies and governments show increasing interest as part of goals to reach net-zero emissions by 2050 or sooner. Interest in the market is high ahead of the UN Climate Change Conference in Glasgow, where governments aim to thrash out a deal on how emissions reductions will be accounted and traded.

What's next? Countries attending the COP26 summit, running Nov. 1-12, aim to nail down the terms of Article 6 under the Paris Agreement—the part of the treaty that deals with international carbon markets. Further clarity on the rules and modalities for international emissions trading could create new demand for carbon credits, boosting market liquidity and potentially driving prices higher.

Related content: Climate talks underscore growing role for energy transition benchmarks

3. Hydrogen at core of Russia's revamped energy strategy

What's happening? Russian President Vladimir Putin in the run-up to COP26 announced the country aims to be carbon neutral by 2060. Achieving this goal will require an overhaul of Russia's heavily fossil-fuel-dependent economy. The pivot towards clean energy is likely to focus on increased nuclear and renewable power, implementing more carbon capture and storage, and developing significant hydrogen production and export projects.

What's next? Russia aims to capture 20% of global hydrogen market share by 2030, according to a government roadmap, with exports of 2 million mt/year expected by 2035, and 15-50 million mt/year by 2050. The country plans to produce hydrogen from nuclear and renewable sources, but analysts expect natural gas to play the biggest role in production, due to Russia's vast gas reserves. Europe and Asia are seen as the key export markets, but there are concerns over whether the EU will accept the environmental credentials of Russian blue hydrogen. To mitigate this risk, Russia is investing in ways to reduce the carbon impact of blue hydrogen, including the use of pyrolysis in production, as well as shipping gas for lower-carbon hydrogen production to facilities with good access to power generated from renewables.

4. China may have reached peak steelmaking emissions

What's happening? Chinese steel production and its related carbon emissions may have already peaked in 2020, according to industry sources. China's State Council released a national carbon peaking action plan late Oct. 26 that calls for steel industry to continue capping its iron and steel making capacity, especially around Beijing, Tianjin and Hebei regions. Such a move would help in reaching peak carbon emissions by 2030, the council said. Over January-September, China's crude steel output reached 805.89 million mt, up 2%, or 15.8 million mt, on the year, according to China's National Bureau of Statistics. If China's daily crude steel output over October-December is maintained at the September level of 2.458 million mt/day, the country's crude steel output in 2021 is set to fall 3% from 1.065 billion mt in 2020 to 1.032 billion mt, Platts calculations showed.

What's next? The State Council's action plan emphasizes use of scrap in steelmaking and the installation of electric arc furnaces. It also encourages the development of hydrogen metallurgy and carbon capture and use technology. But while China's steel industry may already have hit peak carbon emissions, achieving carbon neutrality will be a challenging and costly affair, sources said.

Related content: More on metals and decarbonization in S&P Global Platts Insight magazine

5. New York power plant decision signals tough stance on gas amid lofty climate goals

What's happening? The New York State Department of Environmental Conservation Oct. 27 denied applications for two proposed natural gas-fired power plants, finding that both would be inconsistent with the state's ambitious climate law and are not needed for power grid reliability.

What's next? The Climate Leadership and Community Protection Act, effective Jan. 1, 2020, establishes economy-wide requirements to reduce statewide greenhouse gas emissions and requires a zero-emissions power system by 2040.The CLCPA also mandates 70% renewable electricity by 2030, 9,000 MW of offshore wind capacity by 2035, 3,000 MW of energy storage capacity by 2030, 6,000 MW of solar power capacity by 2025 and a carbon emissions reduction of 22 million tons through energy efficiency and electrification.These requirements and the state's gas plant permit denial indicate that developing new gas-fired power generation projects will require that they capture and store their emissions or use other technology to comply with the state's planned path to decarbonization.

Reporting and analysis by Bruno Brunetti, Frank Watson, Rosemary Griffin and Jared Anderson