Economics

The European Central Bank is now making the economic case for decarbonisation. Not as climate policy. As monetary policy. Frank Elderson, ECB board member, argues in the Financial Times that Europe's dependence on imported fossil fuels is a structural threat to price stability (👉 https://lnkd.in/eKWWjKbh). The data is damning: energy price shocks pushed euro area inflation to 10.6% in October 2022. Every geopolitical tremor in the Middle East shows up in European energy bills. And the ECB is caught in an impossible bind: tighten to fight inflation and deepen the slowdown, ease to support growth and entrench inflation. The solution is not better forecasting models or finetuned monetary policy. It is cheaper energy. Spain shows what is possible. Wholesale electricity prices in early 2024 were approximately 40% lower than they would have been had wind and solar generation remained at 2019 levels ( 👉 https://lnkd.in/edXgxh9q). Once the infrastructure is built, the energy itself is virtually free. Volatile global commodity markets simply become less relevant. Elderson is explicit: €660 billion per year in clean energy investment sounds large. But Europe already spends nearly €400 billion annually on fossil fuel imports, money that leaves the continent and buys geopolitical vulnerability. Analysis in the UK shows that for every pound invested in sustainable energy, benefits outweigh costs by a factor of 2.2 to 4.1 ( 👉 https://lnkd.in/emEXVfiw). This is precisely what I argued in my piece for Triodos a few weeks ago: Europe's crisis response has been backwards. We keep treating energy dependence as a shock to manage rather than a structural problem to fix. (👉https://lnkd.in/ehFqA6iY) The ECB cannot decarbonise Europe. What it can do is name the conditions: keep the ETS, mobilise capital toward renewable capacity, strip out fossil fuel subsidies, and stop confusing cheap fossil fuels with affordable energy. If people need help with energy costs, target it: don't suppress the price signal that drives the transition. The cheapest energy is the energy we no longer have to import.

Wars don’t just destroy nations. They expose how fragile our systems really are. Over the past few years, every global disruption, from conflicts to pandemics to supply shocks, has shown us one thing clearly: We have built a world that is highly efficient… but dangerously dependent. - Food travels thousands of kilometres before it reaches our plates. - Energy systems rely on distant, unstable sources. - Waste is exported, outsourced, and forgotten. And the moment something breaks somewhere in the world, everyone, everywhere, feels it. Maybe the question isn’t: How do we make global systems stronger? Maybe the question is: Why are we so dependent on them in the first place? And what if our cities, towns and villages could: • Grow more of their own food • Generate more of their own energy • Manage their own waste • Create and consume locally This isn’t about isolation. It’s about resilience. Because when systems are decentralised: • Communities recover faster • Livelihoods are created locally • Environmental impact reduces • And people regain a sense of ownership This is where sustainability meets survival. Decentralised production systems are not just a climate solution. They are a risk mitigation strategy for an uncertain world. The future isn’t global vs local. It’s global and local. In fact, its hyperlocal. But the balance has clearly tipped too far. If there’s one lesson from the world we’re witnessing today, it’s this: The strongest communities are the least dependent ones. Time to build local. Time to act resilient. Time to rethink how we produce, consume, and live. What do you think? #Decentralisation #Sustainability #Resilience #ClimateAction #LocalEconomies #CircularEconomy

I’ve been headhunting in the CPG industry for the past decade, and I’ve never seen a post-inflation market like we’re in right now. For the past three years, customers have been capitulating to price hikes by extending their budgets. But now, they’re at a breaking point. American families, already tethering on edges of their budgets, do not have the ability or the desire to expand their budget in order to accommodate increased prices. I’m sure you’d agree with this, because my family certainly does. With grocery bills through the roof, we’d rather skip on groceries and essentials rather than paying a premium right now. A couple things led us here, starting the pandemic and the post-pandemic impact on spending and savings. Secondly, the wave of AI and tech developments that caught us off guard. So, where do the companies go now? Once the “price increase” playbook is done, CPG brands can only win in both value and volume by shifting gears. In my chats with executives, I’m sensing a change in tone. To stay competitive, they’re looking for ways to shift from the post-pandemic survival mindset to a growth-focused one that accommodates the customer as well. Rather than hiking prices, the focus is now on bringing down costs, and getting to terms with consumer’s limited budgets and increasing product choices. Layoffs aren’t the only way to bring down costs. In my view, CPG companies do have the leeway to embrace data-driven innovation and efficiency to cut costs. Here are some of the ways in which companies can use AI and ML to achieve targets in 2025 and beyond: 1/ Predicting the demand: Post-pandemic behavior is tough to predict, especially in CPG markets. With AI, the companies can now leverage real-time insights from sources like point-of-sale systems, social media, and even economic indicators to see future trends more clearly. PepsiCo, uses Tastewise to track what consumers are eating across 60+ million touchpoints and making decisions that align with local preference. 2/ Inventory management: With AI-powered predictive analytics, companies are now turning inventory management into a science. Procter & Gamble’s Supply Chain 3.0 initiative is one example of this shift. 3/ Increased personalization: Leaders are tapping into geographical intelligence to connect meaningfully with audiences. Estée Lauder has a voice-enabled makeup assistant for visually impaired customers, reaching a new market while boosting brand loyalty. Bottom line is: customers are no longer meeting brands where they’re at. It’s high time that companies start caring about customers and their shrinking bottom lines. Are you excited to see your grocery bill go down in the next few months? #CPG #AI #ML #fmcg #marketing #trending

A Primer on how to use the Yield Curve to become a better macro investor. The yield curve is one of the most important macro variables to watch: it contains a lot of information regarding the status of the business cycle and the degree of monetary policy tightening or easing perceived by markets. Inverted yield curves have famously predicted all recessions over the last 50 years with varying time lags. I would add that a big steepening of the yield curve is also an important signal which can explain whether monetary policy is excessively loose and/or whether the economic cycle is accelerating. But one of the key issues of ''reading'' the yield curve is that people tend to do that in isolation, while instead they should apply another angle. The trick here is to look and interpret yield curve moves within the context of the business cycle! So: here is your Yield Curve Cheat Sheet which allows you to do just that. Let's use a recent example. In the early part of 2024 the yield curve has mostly bear flattened while economists were busy revising growth prospects higher. 👉 Take a look at ''Growth Up + Bear Flattening''. What does that imply, and what asset classes benefit the most from this combination? 1️⃣ Cyclical stocks 2️⃣ Commodities In an environment where growth is moving higher and the market is busy repricing away cuts (= the curve bear flattens as rates move up mostly at the front-end), the ''Old Economy'' does well: value, cyclical, energy-related stocks deliver solid performance as the growth cycle is re-rating higher. And these sectors don't need lower rates to thrive: they just need strong economic activity. But now let's take another example: what if growth slows down, and the Fed is forced to cut rates faster? 👉 Take a look at ''Growth Down + Bull Steepening''. Well, in that case cyclical stocks and commodities actually do poorly. The yield curve bull steepens as the Fed is called to urgently cut interest rates because economic conditions are deteriorating. And finally, another example: what if the Fed decides to cut rates anyway despite growth holding up? 👉 Take a look at ''Growth Up + Bull Steepening''. In that case the yield curve bull steepens: Fed cuts push short-term interest rates lower, but traders have to incorporate term premium and uncertainty about future inflation into the long-end of the curve - hence, the bull steepening. Understanding how Yield Curve movements relate to the economic cycle and influence other asset classes is a key macro skill to acquire. In which regime do you think we are today? P.S. Enjoyed this macro analysis? Follow me (Alfonso Peccatiello) so you don't miss any post & stay updated on the launch of my Macro Hedge Fund! P.P.S. FREE TRIAL to my Institutional Macro Research? Join the biggest institutional investors in the world reading it every day - send me a DM and I'll set you up!

Now out: our latest paper (pre-print) A study on cross-border "cannibalization" of wind and solar energy https://lnkd.in/ebPCdA5m It is now well established theoretically and empirically that the market revenues of wind and solar energy tend to decline as their market share grows. I call this the "market value drop". (Actually, I wrote my very first paper about this: https://lnkd.in/eFtNgpfR) In this paper, we use 2015-23 empirical data in monthly granularity. We see a drop in wind and solar market value (capture rates) in almost all European bidding zones. We are particularly interested in the role of imports and exports as a source of power system flexibility. Many EU bidding zones are *really* well interconnected, with import/export capacity >>100% of their average electricity demand. My favorite results figure shows the impact of domestic wind (dark) and neighbouring wind (light) as a function of my own interconnectedness. If I have no interconnectors, domestic wind depresses market value strongly. Interconnection dampens this effect. However, there is a downside to this: with more interconnectors, the impact of my neighbour's wind on my own value factor becomes stronger. We have tons of more interesting findings. For example: If wind market share increases by 1 pp in Europe, the capture rate drops by about 1.1 pp. This is the combined effect of domestic (0.6) and cross-border (0.5) cannibalization. Many thanks for the great work: Clemens Stiewe, Alice Lixuan Xu, Anselm Eicke! This has been a long haul, but I am pretty proud of how far we got with this! https://lnkd.in/ebPCdA5m

The European Commission has introduced a new carbon tax on imported goods called the Carbon Border Adjustment Mechanism (CBAM). This is meant to make sure that European companies and companies from other parts of the world are on the same page when it comes to carbon pricing and environmental commitments. Here are the main changes: 🔴 Emissions Reporting: Starting in October this year, companies have to start keeping track of how much carbon is linked to the goods they import. They need to start reporting this data by January 2024. This reporting will continue until the end of 2025. 🔴 Carbon Leakage Prevention: CBAM is a way to prevent companies from moving their production to places with weaker environmental rules to avoid carbon costs. It makes sure that European products and products made outside of Europe have similar carbon costs. 🔴 CBAM Certificates: Importers have to get CBAM certificates to match the carbon pricing between EU and non-EU products. They need to provide details about the product's carbon footprint, where it's from, how it's made, and its emissions data. This includes emissions during production and indirect emissions, like electricity use. 🔴 Covered Sectors: CBAM applies to industries with high carbon emissions like iron and steel, cement, fertilisers, aluminium, electricity, hydrogen, and some downstream products like screws and bolts. It also covers certain indirect emissions under certain conditions. Importers mainly need to report emissions during the transition phase until 2026. To help importers and producers outside of the EU adapt, the EU Commission is providing guidelines and tools to calculate emissions. They're also offering training materials and webinars. Some important data points to consider: 🟢 Carbon Leakage: A study by the European Environmental Bureau warns that unchecked carbon leakage could cause a 15% increase in global emissions, undermining climate efforts. CBAM aims to prevent this. 🟢 Emissions Differences: The World Trade Organization says that different countries have different emissions rules, leading to different carbon costs. CBAM aims to make this fairer. 🟢 Economic Impact: The European Commission estimates that the global carbon allowance market could be worth €4.5 billion per year by 2030. CBAM will significantly affect international trade and revenues. 🟢 Industry Shift: A study by the European Parliament Research Service shows that without CBAM, high-emission industries might move to places with weaker rules, leading to job losses and less competitiveness in the EU. 🟢 Green Transition: The International Monetary Fund says that well-designed carbon pricing like CBAM can encourage industries to become more environmentally friendly, contributing to a greener global economy. 🟢 Regulatory Challenges: CBAM's reporting requirements might be tough for importers initially. However, the long-term benefits of fair carbon pricing are expected to outweigh the challenges.

It’s rare that an ad stops you on your commute, but something I saw at Bank station today did just that.  Greenly | Certified B Corp has taken over the London Underground and reframed The Economist as The Ecologist to say something I have spent over a decade advising on:  “Weather is small talk”   “Climate is strategy”   “Profit is the proof” I've spent years trying to bridge two worlds that should never have been separated: finance and ecology. The data always said they belonged together, but language kept pulling them apart. The numbers don't leave room for debate:  ⚠️ Climate policy uncertainty operates like a supply shock: a 50% rise cuts GDP by 0.5%, investment by nearly 2%  💶 Companies with credible net-zero plans trade at a 12% premium on average (MSCI, 2023)  🌡️ Physical climate risk is already priced into sovereign debt by the IMF The companies that built auditable carbon trajectories early aren't managing a cost. They're sitting on a competitive advantage. In financing conversations, procurement, and investor relations. This isn't a COP-side event. It's a financial capital and Greenly is saying loudly, without hedging that environmental intelligence and economic intelligence are the same thing. We just kept them in separate rooms for too long. Greenly didn't just launch a campaign. They closed a gap that's cost us years. #climatefinance #climaterisk #sustainablefinance #climatestrategy 

A Time to Reflect on the Tensions Between Growth and Sustainability #NYCW Next week, world leaders and industry giants will gather for New York Climate Week, ready to discuss collaboration to tackle the climate crisis. It’s a promising step, right? But here’s the twist: this all happens in a country that champions a capitalist economy—one that demands perpetual growth and profits. Can we really expect a system designed for “more, more, more” to suddenly protect the planet and its people? On one hand, development fuels progress, and progress is rooted in growth. On the other hand, that very pursuit of growth undermines sustainability. How can we reconcile this? Take maritime decarbonization: we’re focused on alternative fuels to cut emissions. But maybe the real solution lies in reducing global trade itself. Fewer ships, fewer emissions. Can we embrace that reality in a globalized world? Perhaps it’s time to rethink sustainability altogether. Instead of focusing solely on economic growth, we need to re-balance our approach, placing environmental sustainability on equal footing. Just as governments and regulators have propped up the economy, we need that same commitment to protect our ecosystems. Without environmental checks and balances, does a capitalist economy really set us up for a sustainable future? As we head into Climate Week, it’s worth critically evaluating the very foundations of our assumptions. Are we ready for real change—or are we simply polishing the surface of a flawed system?

📊 Exciting new research from the European Central Bank (ECB) sheds light on how banks are pricing climate risk in their lending practices! 🌿 In their working paper, Carlo Altavilla, Miguel Boucinha, Marco Pagano, and Andrea Polo combine euro-area credit register data with carbon emission information to uncover fascinating insights into the intersection of finance and climate change. 🏦 The study finds that banks are indeed factoring climate risk into their lending decisions. Firms with higher carbon emissions face higher interest rates, while those committed to reducing emissions enjoy lower rates. Interestingly, banks that have publicly committed to decarbonization goals (through initiatives like Science Based Targets initiative) are even more aggressive in this pricing strategy. 💶 But here's where it gets really intriguing: the researchers uncovered a "climate risk-taking channel" of monetary policy. When the ECB tightens monetary policy, banks not only increase their overall credit risk premiums but also amplify their climate risk premiums. This means that during periods of monetary tightening, high-emission firms face a double whammy of increased borrowing costs and reduced access to credit compared to their greener counterparts. The authors argue that while restrictive monetary policy may slow down overall decarbonization efforts, it inadvertently creates a more favourable environment for low-emission firms and those committed to going green. 🌍 These findings are crucial for understanding how the financial sector is adapting to climate change and how monetary policy interacts with climate-related financial risks. It's also clear that the greening of finance is not just a trend, but a fundamental shift in how risk is assessed and priced in our economy. #ClimateFinance #SustainableBanking #MonetaryPolicy #ECB #GreenEconomy #ClimateRisk

Looking backwards to predict the future is misleading. New technologies scale far faster than their predecessors. Solar took just eight years to grow from 100 TWh to 1,000 TWh—and only three more years to double again, surpassing 2,000 TWh in 2024. For each of the past three years, solar has been the largest source of new electricity worldwide. Nothing else in power generation has scaled this quickly. Falling costs, modular design, and rapid deployment are turning solar into the backbone of the emerging global energy system. It’s clean, scalable, and increasingly central to modern economies. And as battery costs tumble and storage deployment accelerates, a growing number of projects are targeting round-the-clock solar electricity.