Things we are reading today - December 22nd, 2022 - Coal, Carbon Markets, De-Dollarisation and more

The world is using more coal than ever

According to a report released last week by the International Energy Agency (IEA), 2022’s global coal use will surpass the last record set in 2013. The IEA expects coal use to peak either this year or in 2023, then plateau until 2025, before declining again.

Source: IEA

We had also written about this and energy transition in general in one of our previous newsletters.

This doesn’t sound like good news if we have to limit climate change. Then the question is, how do we move towards a cleaner world with more efficient carbon utilization? Well, one of the ways is a well developed carbon market.

Carbon markets

What are carbon markets?

In a nutshell, carbon markets are trading systems in which carbon credits are sold and bought. One tradable carbon credit equals one tonne of carbon dioxide (CO2) or the equivalent amount of a different greenhouse gas reduced, sequestered or avoided. To read more about them and why they are important click here.

It seems that the European Union (EU) is carrying out important changes to its carbon market.

The EU’s “emissions trading scheme” (ETS) is the bloc’s most important climate policy. It currently covers emissions from about 10,000 power plants and industrial facilities across its 27 member states, making it the world’s biggest in terms of covered facilities—China, which has the biggest carbon market in terms of CO2 emissions, only about 2,000 power plants.

It is just a matter of time before we will see a universal carbon market and universal carbon pricing. But until we don’t see universal carbon pricing, won’t the EU lose out to the competition? Well not really.

The EU recently settled on a long-negotiated policy to levy import tariffs on steel, cement, fertilizer, iron, aluminium, and electricity, based on the volume of carbon emissions created during their manufacturing in exporting countries.

“The carbon border adjustment mechanism (CBAM) is meant to protect the competitiveness of European manufacturers. Once the price of carbon emission permits in Europe—some of which are now doled out for free—begins to rise, companies will face increasing pressure to decarbonize. The tariff, in effect, effectively imposes Europe’s carbon price on countries that don’t have their own. In this way, EU policymakers hope to prevent high-carbon industries from simply relocating outside the EU. Known as “carbon leakage,” this effect would not only damage the European economy but, from a planetary perspective, render the EU carbon price pointless.”

How will this carbon tariff work? Can some countries be exempt from it?

If you want to know more about how to go about internalizing the cost of carbon in a manner consistent with the aims of a zero-carbon world click here to see what Nobel Laureate Joseph Stiglitz has to say.

Lesser money to invest

It is likely that venture capital is expected to see less capital from crossover investors in 2023 which means that there is a general downturn for the pre-IPO industry.

According to PitchBook’s 2023 Venture Capital Outlook, economic uncertainty has nontraditional investors — hedge funds and any other investment organizations not related to a VC firm — quickly pulling back on the opportunistic venture strategies that drove valuations to new heights in recent years.

Last year, 80.5% of deal value in the venture growth category was derived from deals with nontraditional investor participation. In the third quarter this year, the largest nontraditional investors participated in deals that totalled less than $12 billion across 211 investments — $33 billion less than last year’s quarterly peak, with 304 fewer investments than last year’s record quarter.

What this means is that now there are more companies in need of money and less capital.

The silver lining maybe that we may see fewer companies looking to raise money at this stage of VC and instead focus on sustainable growth and important things like making a profit!

Is the demise of the petrodollar near?

First, let’s take a look at how the dollar became so important.

“When oil prices skyrocketed in 1973, the USA decided to create a system of dollar seigniorage through Saudi oil profits. In 1974, U.S. Treasury Secretary William Simon arrived in Riyadh and proposed that the USA will purchase large amounts of Saudi oil in dollars and that the Saudis use these dollars to buy US Treasury bonds and weaponry and invest in US banks as a way to recycle vast Saudi oil profits. And so the petrodollar was born, which anchored the new dollar-denominated world trade and investment system.”

The petrodollar system has, however, received two serious blows.

  1. The 2008 financial crisis highlighted the perils of being fully dependent on the dollar. Arguably, this was the point when other countries around the world seriously started looking for alternative payment systems not dependent on the dollar and SWIFT.
  2. The centrality of the dollar in global trade and financial markets has also allowed the US to weaponize it on a massive scale. Most recently, we saw this when the US, Europe, and their allies froze over $300 billion of Russian central bank reserves. Entire countries like Iran and Venezuela have also been cut off from the global banking system.Here are all the countries sanctioned by the US and its allies


Even though we are currently far from the demise of the dollar, is it possible that the world can de-dollarize? Are there enough incentives?

Source: IMF.

We discussed this topic in brief in our podcast with Debashish Bose, you can click here to hear what he has to say.

More recently, Mr. Vijay Prashad, a prominent historian, editor, and journalist, has also written about this topic.

Book Review: The Bogle Effect by Eric Balchunas

Eric has done a wonderful job outlining the influence Jack Bogel had on the financial services industry. Many of the lessons learned and the stories told are likely relevant to other industries plagued by sleepy players that lack a focus on customer outcomes. I highly recommend you consider this book as a stocking stuffer for any business geeks you know.

We have nothing to add to this, just take a look at this book review and maybe read the book?


No effect seen in rupee yet but newsflow is gaining pace.

@Abhinav_Singh_Negi what’s the timeline you are expecting to see dollar weakening significantly