Finance

The U.S. Department of the Treasury identified 644,705 people who hadn’t gotten a third stimulus check by the middle of September, according to a report published Thursday.
Report data indicates many likely received a $1,400 stimulus check since then. However, the scope is unclear. Thousands will have to wait for the funds until they file their 2021 income tax return.
Further, about 1.2 million people got a stimulus check they likely weren’t eligible for, the report said.

Irinascreativephoto | E+ | Getty Images

Almost 645,000 people who were eligible for the third round of stimulus checks hadn’t gotten their payments as of mid-September, according to a U.S. Department of the Treasury report published Thursday.
The American Rescue Plan authorized the federal government to send up to $1,400 to each person who qualified, starting in March 2021. It was the third and final tranche of federal stimulus funds authorized by Congress during the Covid-19 pandemic.

The money was technically an advance payment of a tax credit, the Recovery Rebate Credit, that households can claim on their 2021 income tax return.
The IRS had correctly issued payments to nearly 167 million people as of Sept. 16, 2021 — almost 99.5% of the total, according to the report, published by the Treasury Inspector General for Tax Administration, a watchdog housed within the Treasury Department.
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However, the Treasury identified 644,705 people who hadn’t gotten a payment within that timeframe, the report said. Their missing funds totaled $1.6 billion.
An additional 294,000 people had been issued stimulus payments by the federal government but the arrival of those payments was somehow delayed or the funds hadn’t yet been accessed, the report said.

The number of people affected who’ve gotten a payment since mid-September is unclear. An IRS spokesperson wasn’t able to elaborate on the contents of the report by press time. The report data suggests many of them have gotten their funds or that the IRS is evaluating the payments.
Further, more than 1.2 million total payments issued ($1.9 billion) were to people who likely shouldn’t have gotten the money, the report said. They included ineligible dependents, non-U.S. residents and duplicate payments made to households who changed their tax-filing status, for example.

“Delivering these payments was no small undertaking,” Kenneth Corbin, commissioner of the IRS wage and investment division, wrote in a response attached to the Treasury report.
“Employees in various IRS offices collaborated to improve delivery of payments each of the three times Congress passed stimulus legislation, so that by the third round, checks started going out the very next day providing immediate help to people across the country,” he added.

Missing funds

Americans who didn’t receive stimulus funds include many with eligible dependents. Some recipients of unemployment benefits should also have been eligible for a check after the IRS applied a new tax break, the report said. (That tax break effectively reduced their income below the necessary threshold to get a stimulus check.)
However, it’s likely that many of these individuals have gotten their stimulus funds since the middle of September.

For example, there were almost 420,000 people who hadn’t received a $1,400 check for an eligible dependent as of April 1, 2021, which the IRS acknowledged was due to a programming error. But the agency fixed the error by April 22, and 99.5% were being “considered” for a payment as of September, according to the report. An agency spokesperson wasn’t able to elaborate on the status of those payments by press time.
The Treasury watchdog also recommended the IRS issue payments to qualifying recipients of unemployment benefits, but IRS management disagreed, the report said. These taxpayers must claim the 2021 Recovery Rebate Credit on their 2021 income tax returns. Tax season ends for most filers on April 18 this year.

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Larry Fink, CEO and chairman of the world’s biggest asset manager, BlackRock, said Russia’s invasion of Ukraine is reversing the long-running trend of globalization.
“I believe this has exacerbated the polarization and extremist behavior we are seeing across society today,” Fink said in his 2022 letter to shareholders.
Fink, whose firm oversees more than $10 trillion, said BlackRock has suspended the purchase of any Russian securities in its active or index portfolios.

Larry Fink, chief executive officer of BlackRock Inc., in Zurich, Switzerland, on Thursday, March 7, 2019.
Stefan Wermuth | Bloomberg via Getty Images

Larry Fink, CEO and chairman of the world’s biggest asset manager BlackRock, said Russia’s invasion of Ukraine has upended the world order that had been in place since the end of the Cold War.
“The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades,” Fink said in his 2022 letter to shareholders. “It has left many communities and people feeling isolated and looking inward. I believe this has exacerbated the polarization and extremist behavior we are seeing across society today.”

Fink’s letter came a month into Russia’s invasion of Ukraine with Moscow’s forces bombarding cities across the country and killing civilians unable to escape. The U.S. and its allies have imposed unprecedented sanctions on Russia and provided military assistance to Ukraine. 
Fink, whose firm oversees more than $10 trillion, said nations and governments have come together and launched an “economic war” against Russia. He said BlackRock has also taken steps to suspend the purchase of any Russian securities in its active or index portfolios.
“Over the past few weeks, I’ve spoken to countless stakeholders, including our clients and employees, who are all looking to understand what could be done to prevent capital from being deployed to Russia,” Fink said.
Back in the early 1990s when the world emerged from the Cold War, Russia was welcomed into the global financial system and given access to global capital markets, Fink wrote. The expansion of globalization accelerated international trade, grew global capital markets and increased economic growth, he said.
It was right then, 34 years ago, when BlackRock was founded and the firm benefited immensely from the rise of globalization and growth of the capital markets, which fueled the need for technology-driven asset management, Fink said.

“I remain a long-term believer in the benefits of globalization and the power of global capital markets. Access to global capital enables companies to fund growth, countries to increase economic development, and more people to experience financial well-being,” Fink said.
The CEO said BlackRock is committed to monitoring the direct and indirect impacts of the crisis and aimed to understand how to navigate this new investment environment.
“The money we manage belongs to our clients. And to serve them, we work to understand how changes around the world will impact their investment outcomes,” Fink said.

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HOME OWNERSHIP had long been a distant dream for many millennials. But after years of putting off marriage, delaying parenthood and battling student debt, the so-called Generation Rent is at last emerging as a big driver of the housing boom in the rich world.Typically defined as those born between 1981 and 1996, millennials make up the largest generation ever in America. As more of them reach their peak buying years, they are becoming a force to be reckoned with in the property market. In America they represent the fastest-growing segment of buyers and have accounted for more than half of all mortgage applications over the past two years. CoreLogic, a research firm, estimates that millennial homebuying was responsible for more than 60% of property-sales growth in 2020. British millennials are now more likely to own their home than to rent. And nearly half of adults aged 25-35 in Canada have bought property.More millennials will reach the age of 32, the median age for first-time buyers, over the next two years than ever before. If the additional demand is to be satisfied American builders will need to construct as many as 2m houses each year, according to Jefferies, an investment bank. That compares with housing starts of 1.6m in 2021.But the homebuying frenzy reflects more than millennials simply getting older. Following lockdowns and other sweeping changes to daily life during the pandemic, a growing number of millennials want larger family homes with more dedicated office space for remote work. Those who already own property are trading up for more space. This, in addition to stamp-duty tax cuts, helped push the number of first-time buyers in Britain to its highest level in nearly two decades in 2021. Some have brought forward plans to buy. In America nearly a third of young adults polled by Clever Real Estate, a property firm, said that covid-19 had nudged them into house-hunting earlier than planned.The millennial push is reshaping property markets. For one thing, millennials are swapping flats for family homes. The vast majority of young buyers in America bought a single-family home in 2021. Many are also leaving cities, or trading expensive areas for cheaper ones. Young adults are less tied to London, says Lucian Cook of Savills, a property firm. The number of millennials in Britain’s smaller cities, such as Manchester, Glasgow, Edinburgh and Bristol, is growing far more quickly than that in the Big Smoke.Remote work is also opening up more affordable places to live. In America buyers are flocking to sunbelt hotspots, like Phoenix and Tampa. Zillow, a property firm, estimates that a typical renter in San Francisco would have to set aside 2.4% of their income for six or seven years to save enough for a 20% deposit on a starter home in Austin or Phoenix. For a similar property in San Francisco they would have to save for more than 70 years.Will millennial home ownership continue to power the market? The growing number of millennials entering their buying years will keep momentum going, and flexible work could continue to make cheaper areas more attractive. The question is what happens to affordability. Interest rates in many places are going up: the Federal Reserve expects to raise rates six more times this year. That could cool demand and increase mortgage-servicing costs. Rising interest rates in the 1980s, for instance, depressed housing markets just as baby-boomers reached their peak buying years. The difference now, though, is that rates are low by historical standards and expected to rise only gradually.Severe constraints on housing supply, however, may mean that affordability remains strained. Shortages of labour and materials will make it harder for builders to put new homes on the market. Record-low inventory and fierce bidding wars could mean fewer homes to choose from. For some millennials, the dream of home ownership may still prove out of reach. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Coming of age” More

IN MID-FEBRUARY Russia seemed on the verge of a revolution with a distinctly reddish tint. Alisher Usmanov, an oligarch, was developing Udokan, a copper mine in Siberia that required removing an entire mountain top. In the Arctic tundra Kaz Minerals, a mining firm, had raised enough cash to build Baimskaya, a rival mine so remote that it needed its own port, icebreaker and floating nuclear plant. For years the projects had been put on hold because of their immense costs. But expectations of soaring demand for copper, used in everything from grids to turbines, had boosted prices of the auburn metal, making the mines viable.Now the copper price is even higher. But the projects are in trouble. Insiders say they are short of vital foreign equipment that has been blocked by the West after Russia’s invasion of Ukraine, and that they are starved of the funds they had expected from blacklisted Russian banks. Mr Usmanov, too, faces sanctions. A spokesman for Udokan says, “We are doing everything we can to ensure business continuity.” Yet even if the mine starts producing this year as planned, it is unclear who will buy its output. Foreigners, even the Chinese, are shunning Russian production.As the world weans itself off dirty fuels, it must switch to cleaner energy sources. The International Energy Agency (IEA), an official forecaster, predicts that wind and solar could account for 70% of power generation by 2050, up from 9% in 2020, if the world embarks on a course to become carbon-neutral by 2050. That translates into huge demand for the metals, such as cobalt, copper and nickel, that are vital for the technologies underpinning everything from electric cars to renewables; the IEA reckons that the market size of such green metals would increase almost seven-fold by 2030. And much like fossil-fuel reserves, these commodities are distributed unevenly (see chart 1). Some countries have none at all. Others are blessed with vast deposits.The metals rush will not be as big as the oil-and-gas boom that toppled King Coal after the second world war. But there are some echoes with the past. Between 1940 and 1970 the share of hydrocarbons in the energy supply of rich countries rose from 26% to nearly 70%. Once-marginal economies in the Middle East were transformed into uber-rich petrostates. Between 1970 and 1980 the GDP per person of Qatar and Saudi Arabia grew 12- and 18-fold, respectively. Bedouin villages became boom towns; fishing dhows gave way to super tankers and luxury yachts.This time the transition will bring windfalls to countries we dub the “green-commodity superpowers”. We calculate that this club, many of which are poor economies and autocracies, could pocket more than $1.2trn in annual revenue from energy-related metals by 2040.With the opportunity, however, come risks. As the troubled mining projects in Russia show, important investments can become victims of local conditions and geopolitics. Huge rents could corrode domestic markets and political institutions; autocrats enriched by electrodollars could make mischief beyond their borders. Saad Rahim of Trafigura, a trading firm, says the shift to clean fuels is “less an energy transition than a commodity transition”. It will be a turbulent one.The green boom is not just another “supercycle”, as prolonged periods of high commodity prices are known. The last such cycle, early this century, was fuelled by rapid urbanisation and industrialisation in China. The combined real GDP of Brazil and Russia, two resource-rich economies, grew by two-thirds between 2000 and 2014. But the rally was largely driven by China alone. When the country’s leaders decided it should build fewer factories and flats, the commodity giants suffered. The green transition, by contrast, stems from the decisions of many governments, not one. And decarbonising the world is likely to be the job of decades.Another big difference lies in the materials in demand. China’s splurge burned through heaps of coal, iron and steel. The green boom centres on non-ferrous metals that are more niche. Their combined annual revenues today, at $600bn, is equivalent to only a fifth of that of the bulk materials that China favoured. There may be more explosive growth to come.To understand which commodity producers stand to win and lose from a green transition, we construct a simple scenario for the use of ten “energy-linked” commodities in 2040, assuming that global warming by 2100 stays below 2°C. Based on data from a range of industry sources, we project demand and revenue for three fossil fuels (oil, gas, coal) and seven metals (aluminium, cobalt, copper, lithium, nickel, silver and zinc) that are critical to building an electricity economy. We assume that prices remain at today’s elevated levels, prompting miners to exploit untapped deposits. And we assume that a producer’s market share in 2040 is in line with its share of known reserves.Our findings suggest the world will be less reliant on energy-related resources in 2040 than it is today—largely because wind and sunshine, the sources of the future, are free. Total spending on our basket of ten commodities falls to 3.4% of global GDP, from 5.8% in 2021. Spending on fossil fuels, relative to world GDP, falls by half (and would shrink further were it not for gas). The revenue from green metals remains smaller, but rises from 0.5% to 0.7% of GDP. It nearly triples in absolute terms.The number of big producers of energy-linked commodities falls over time: 48 stand to pocket sales equivalent to more than 5% of their GDP, down from 58 in 2021 (see chart 2). More than half of total spending goes towards autocracies.You can group producers into three buckets, based on the expected change in their revenues from the ten energy-linked commodities between now and 2040. The first comprises the winners—the green superpowers. These electrostates include some rich democracies. Australia has troves of every metal included in our sample. Chile is home to 42% of the world’s lithium reserves and a quarter of its copper deposits, much of them in the Atacama desert (pictured above). Others are autocracies. Congo has 46% of global cobalt reserves (and produces 70% of the world’s output today). China is home to aluminium, copper and lithium. Poorer democracies in Asia and Latin America may also hit the jackpot. Indonesia sits on mountains of nickel. Peru holds nearly a quarter of the world’s silver.The second bucket comprises countries with revenues that stay flat, or fall a little. It includes the low-cost members of the Organisation of the Petroleum Exporting Countries (OPEC)— including Iran, Iraq and Saudi Arabia—and Russia. Although oil revenue shrinks, their share of it expands from 45% today to 57% in 2040. Other countries, such as America, Brazil and Canada, lose fossil-fuel earnings but are able to tap vast mineral deposits.Higher-cost petrostates lose the most. Many oil-rich nations in north Africa (Algeria, Egypt), sub-Saharan Africa (Angola, Nigeria) and Europe (Britain, Norway) see their revenues shrivel. Small states like South Sudan, Timor Leste and Trinidad have theirs hit hard. The pain does not spare some Gulf states: the proceeds captured by Bahrain and Qatar, for instance, decline by a fifth or more.What might prevent the new commodity superpowers emerging? The key ingredient is capital spending. The IEA estimates that major mines that came online in the past decade took, on average, 16 years to build. To meet booming demand by 2040, the industry must splash out on new projects now. The sums required are big. Julian Kettle of Wood Mackenzie, a consultancy, reckons $2trn must be spent on green-metal exploration and production (E&P) by 2040. Recent projects suggest digging out enough copper and nickel alone would require $250bn-350bn in capital expenditure (capex) well before 2030.Pedal to the metalSome of the outlay is taking place. Anglo American, a miner, aims to expand its copper output by 50-60% by 2030. “We will deliver our part of the bargain,” says Mark Cutifani, its boss. Many others will not. Burnt by the commodity crash of the mid-2010s, mining majors have reduced investment. Liberum Capital, an investment bank, calculates that annual copper E&P capex has fallen by half since 2014, to $14bn. As prices rise, so do profits. But cash is being given back to investors rather than redeployed. “Supply growth has almost become a dirty word,” says Stephen Gill of Pala Investments, a venture-capital firm.Only China is spending a lot. In Kolwezi, in Congo’s cobalt belt, barefoot children greet all foreigners with shouts of “ni hao”. Chinese groups have nabbed most big commercial deposits; Albert Abel, an artisanal miner, complains they have bought most small mines too. Glencore, an adventurous Swiss trader, is the only Western firm to have a foothold. In Indonesia Chinese miners are clearing swathes of rainforest to dig out nickel.The capex drought is a result of three daunting problems: the industry’s limited firepower, diminishing investment returns and rising political risk. Start with firepower. Though what miners must spend over two decades is equivalent to only four years of typical oil E& P capex, it still seems beyond the capacity of the comparatively tiny sector. Even big miners can only fund one serious project at a time.This might be fixed by tapping capital providers beyond the majors’ usually cautious public-market investors. These could include vertically integrated manufacturers that rely on scarce minerals. Tesla, an electric-car maker, has promised to buy the future nickel production of mines in Australia, Minnesota and New Caledonia. Private-equity firms and state-backed national champions tasked with securing supply could also chip in.A second problem is the worsening quality of mineral deposits. Udokan says it is the last potential mine with copper content above 1% of the rock. The average grade of Chilean copper has fallen by 30% over the past 15 years, to 0.7%. Lower grades are pushing up extraction and processing costs (and carbon emissions). “Today we use 16 times more energy to make the same pound of copper as we did 100 years ago,” says Mr Cutifani.Innovation may help. Last year BHP, another miner, and Equinor, Norway’s state-backed energy firm, invested in an artificial-intelligence startup that sifts through 20m pages of state and scientific archives to identify where new deposits might lie. In time technological breakthroughs could even make exploring sea floors profitable. The world’s 67,000km of mid-ocean ridges contain a lot of copper, cobalt and other minerals. This, too, could mint electro states: Fiji (8%) and Norway (5.5%) hold the most economic rights to those ridges.Yet innovation also makes future returns less certain. The durably high prices that miners need to invest will also encourage big buyers to seek alternatives to the dearest metals. Tesla’s batteries include less than 5% cobalt, down from one-third just a few years ago. Innovation could also facilitate recycling. By 2040, the IEA reckons, extracting cobalt from old batteries could help meet 12% of total demand.Game of stonesPerhaps the biggest risk to investment comes from politics. The minerals mania stands to make some poor economies rich overnight. The story of commodity booms over centuries, including the hydrocarbon bonanza, shows that this resource blessing can also be a curse, which could in turn discourage further investment.Gigantic oil rents have made many countries unstable. Rival factions vie to control riches, fuelling inequality and strife. Vast dollar inflows buoy local currencies, crushing exporters. Debt binges during boom times trigger fiscal crises when the cycle turns. Resentful populations make domestic politics even more fractious. Take Nigeria. In 1965 it exported ten different commodities, from cocoa to tin. Two decades of oil discoveries later, petroleum accounted for 97% of its merchandise exports, and had contributed to political instability.The worry now is that history repeats itself. Some electrostates are poorly equipped to manage windfalls. The majority of the world’s 96 commodity-linked sovereign-wealth funds are backed by sales of fossil fuels; only seven green-metals exporters have established rainy-day funds, according to Global SWF, a data provider. That is despite a big need for them: much of the spending on metals is expected to take place by 2050, after which demand will ebb and exporters could face leaner times.Even the prospect of a bonanza could tempt governments to extract more rents from firms. Some tensions are already emerging. Rio Tinto, the world’s second-largest miner, was able to restart a long-stranded Mongolian project only after agreeing to write off $2.4bn in loans to the government. In January Serbia withdrew the firm’s exploration permits after protests over plans for a big lithium mine. Peru’s new leftist president is mulling higher taxes; one of its biggest copper mines has been blockaded for weeks by locals demanding a share of profits. Chile is debating nationalising copper and lithium as it works on a new constitution.This volatile environment suggests metals may have to become pricier still before foreign firms think it worth taking a gamble. Price rises so far have already sent some Western miners to frontiers once deemed too perilous to explore. On March 20th Barrick Gold, a Canadian firm, signed a deal to invest $10bn in a copper mine on Pakistan’s border with Iran and Afghanistan. BHP is returning to Africa with an investment in Tanzania.But prices may still not be high enough. Last year Ivan Glasenberg, then Glencore’s boss, said copper may have to hit $15,000 a tonne, up from today’s record $10,000, to truly incentivise new supply. The higher prices go, however, the more they run the risk of depressing demand, or making local politics yet more volatile. Either could cause investment to stall again.Many would-be green giants know they can help avoid climate catastrophe. “If we stop mining, we won’t be able to cut emissions,” says Juan Carlos Jobet, a former energy minister of Chile. To realise their super powers, though, they will need to break the curse. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “The new superpowers” More

IF HE WORLD economy fails to decarbonise, it will not be because of the cost. The gross investment needed to achieve net-zero emissions by 2050 can seem enormous: a cumulative $275trn, according to the McKinsey Global Institute, a think-tank attached to the consultancy. But over a period of decades the world would have had to replace its cars, gas boilers and power plants anyway. So the additional spending needed to go green is in fact much smaller: $25trn. Spread that over many years and compare it to global GDP, and it looks significant but manageable, peaking at 1.4% between 2026 and 2035. And that is without counting the returns on the investment. British officials reckon that three-quarters of the total cost of the transition to net zero will be offset by benefits such as more efficient transport, and that the state may need to spend only 0.4% of GDP a year over three decades.The challenge of getting to net zero, therefore, is not primarily budgetary but structural: how do you design politically viable policies to ensure the transition actually happens? That is the question Eric Lonergan, an economist and fund manager, and Corinne Sawers, a climate consultant, take on in their new book “Supercharge Me: Net Zero Faster”.The authors are not kind to economists, who typically want to put a price on emissions and then let markets do the work. Economists have, the authors allege, skipped a chapter in the textbooks. They have focused on externalities, the damage done to society when carbon is emitted. But they do not think about the elasticity of demand—the extent to which prices change behaviour.Carbon prices do not alter people’s choices much when there are too few substitutes for dirty goods, or when those substitutes are too expensive. High fuel taxes, for example, tend to provoke a political backlash against environmentalism—think of France’s gilets jaunes—but do not much alter transport emissions. Britain has had one of the highest levels of fuel duty in the rich world in recent decades, note Mr Lonergan and Ms Sawers, but drivers’ take-up of electric vehicles has been unremarkable.The authors argue that getting people to make the big leaps needed to decarbonise, such as buying an electric car or installing a domestic heat pump, instead requires “extreme positive incentives for change” (EPICs). They laud Norway for exempting electric vehicles from road tax, cutting their parking charges in half and giving them access to bus lanes. (More than 90% of cars sold in the country are now electric.) They propose big mortgage discounts for homeowners who retrofit their properties. And they want the state to generously subsidise lending to green projects while exempting them from a range of taxes. “To succeed we have to fight on all fronts,” they write.Their assault on carbon pricing is not entirely without merit. The theoretical attraction of the policy is that it leads the market to discover the cheapest ways to cut emissions, where behaviour is easily changed, while allowing other parts of the economy to choose to pay the toll. Economists in Barack Obama’s White House were among those who puzzled over the “social cost of carbon”—the optimal carbon price that would deter some emissions, but not those that were sufficiently beneficial to the economy to offset their effect on global temperatures.But in a world of fixed-date net-zero targets this sort of logic loses power. Such goals concern all pollution, not just that which is easily abated. Saying there is a maximum permissible amount of global warming of 1.5-2°C above pre-industrial levels—the targets in the Paris agreement—is like saying there is a point at which the social cost of carbon is infinite. In this world policymakers are not setting a carbon price to distinguish between emissions. They are trying to change behaviour. It may be that EPICs or investments in green technology are a more politically viable route to doing so than raising the carbon price to whatever level is necessary to extinguish inelastic demand for fossil fuels.Yet the authors push their criticism of carbon prices too far. They praise Britain’s adoption of wind power, but fail to note the role that its “carbon price floor”, a minimum levy bolted on to the EU’s emissions-trading scheme, played in the transition. They lament the “complexity” of carbon taxation, while also advocating a fiddly green corporate tax. And they fail to notice the flawed political economy of their kitchen-sink approach. For example, they call on central banks to provide the green subsidies they desire. To whom would the central bank be accountable? And once the principle that monetary policy does not allocate capital is conceded, what is to stop other demands being made on it? Carbon pricing is simple and transparent by comparison.Casting the net wideMoreover, there is an important role for carbon pricing even in a net-zero world. One area of technological possibility concerns the removal of carbon dioxide from the atmosphere. The potential for “direct air capture”, or a well-governed market for carbon offsets such as planting trees, restores the logic of using carbon prices to discriminate between emissions as well as simply deterring them. If such advances materialise, the carbon price might eventually be the exact cost of extracting carbon from the atmosphere, with the market determining the size of the gross flows on either side of the net-zero ledger.Even if Mr Lonergan and Ms Sawers are right that some EPICs are needed to make the journey to net zero politically easier, then, economists’ long-standing arguments for carbon pricing still have considerable merit. And the world has been slowly coming round: in 2021 more than 20% of greenhouse-gas emissions were covered by a carbon-pricing scheme, up from about 5% a decade ago. The path to net zero will involve more than set-it-and-forget-it carbon pricing. But economists’ favourite climate-change policy remains an essential one. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “An EPIC challenge” More

IN “CASINO”, A film from 1995, Joe Pesci plays Nicky Santoro, a violent gangster with a short fuse. Santoro has been losing heavily at blackjack. If the next card is a picture card, he will lose some more. The dealer turns the king of clubs. Santoro angrily flicks the card back and, in the saltiest language, orders the dealer to try again. A nervous floor manager nods his assent. The dealer turns the queen of hearts. Santoro grows angrier. The dealer tries again. The same sequence—picture card, profanity, fresh deal—is repeated, until Santoro has a winning hand.In real-life casinos, as in financial markets, you do not get another free go if your bets go awry. Nor do not get your money back—except, apparently, at the London Metal Exchange (LME). This week the buying and selling of nickel on the exchange is slowly getting back to normal. But the cancellation of some inconvenient trades prior to a two-week hiatus in active nickel trading has damaged the reputation of the LME and the standing of London as a financial centre. A parallel that springs to mind is LIBOR—another London-branded benchmark that global finance lost faith in.Start with a recap. The price of nickel, a metal used in stainless steel and electric-vehicle batteries, had been rising in the wake of the invasion of Ukraine. Russia produces a fifth of the world’s purest-grade nickel. Stocks were already low. Then, on March 7th, nickel prices rose by 66% to $48,000 a tonne. In the early hours of March 8th the price doubled. The LME suspended trading in nickel, judging that prices no longer reflected the underlying physical market. But it went further. It cancelled all trades made after midnight. The price rises, the exchange said, had created a systemic risk to the entire market.What happened was a classic short squeeze. At its centre was Tsingshan Holdings, a Chinese nickel producer, which had short positions (bets on falling prices) on the LME but also away from the exchange. Its attempt to cover the shorts by buying back nickel at inflated prices only drove the price higher. The fear was that Tsingshan could not make its margin calls, interim payments to parties on the other side of the trade. That might have taken down some of the LME’s member-brokers. Exchanges call a halt to trading from time to time. But the cancellation of trades is extremely rare. And in other asset markets, the parties who lose out to extreme price moves have to take those losses. They don’t get to flick the cards at the dealer and expect him to try again.The LME justified its actions as protecting the integrity of the physical market. In doing so, it created a divide. On one side are the miners and metal-bashers that rely on the exchange for trading, pricing and hedging services. On the other side are fund managers, who use its futures and options to gain exposure to commodities as an asset class. The LME, which has a parent company in Hong Kong, seems to have favoured the first group over the second. For some, this was the right call. They see the exchange as a venue for metals trading, not a casino. But speculators are vital. Producers sell futures to insure themselves against a price rout that would threaten their solvency. Someone has to take the other side.This is where the parallel with LIBOR comes in. The London Interbank Offered Rate was supposed to represent the interest rates at which banks lent to each other overnight. It was based on a survey of bankers. During the financial crisis of 2007-09, some bankers submitted false quotes to serve their private interests. Trust was destroyed. But so embedded was LIBOR as a benchmark, that it has taken many years to phase it out.Though nothing the LME has done is illegal, trust in it has also been compromised. The metals prices set on the exchange are far less central to finance, but they are nonetheless the benchmark for industry pricing. And as with LIBOR, it is not easy for users to quickly take their business elsewhere. Like all established exchanges, the LME benefits from the power of networks: the more traders it attracts, the more others flock to it. A consequence is that the LME has a formidable market share in metals trading.Like many London institutions, it leans on its heritage. It has a 145-year history, and is the last open-outcry venue in Europe. Viewed from New York or Connecticut, though, heritage looks like backwardness, and the LME’s face-to-face trading a sign of its insularity. For now nickel trading has resumed in London. Players have returned to the tables, a few of them cursing like Santoro. But the game will never be quite the same again.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Twisted metal” More

From Mar. 31, firms operating crypto services in Britain must be registered with the Financial Conduct Authority.
Revolut and Copper are among the companies listed on a temporary FCA register, which will close once the deadline passes.
They may soon be forced to wind down their crypto activities in Britain if they fail to obtain full authorization.

A novelty Bitcoin token photographed on a £10 note.
Matt Cardy | Getty Images

LONDON — A slew of cryptocurrency companies could be forced to wind down their business in the U.K. if they fail to register with the finance watchdog ahead of a key deadline next week.
From Mar. 31, firms operating crypto services in Britain must be registered with the Financial Conduct Authority, which is tasked with overseeing how digital asset firms combat money laundering.

Last year, the regulator extended the deadline allowing firms on a temporary register to continue trading while they sought full authorization — it’ll close once the deadline passes. The FCA said many crypto companies had withdrawn their applications as they were not meeting the required anti-money laundering standards.
Now, with just days to go until the new deadline elapses, the fate of firms on the temporary register — including $33 billion fintech firm Revolut and Copper, a crypto start-up that counts former U.K. Finance Minister Philip Hammond as an advisor — hangs in the balance.

‘A total disaster’

Many industry insiders have expressed frustration with the FCA’s handling of the crypto register.
One lawyer advising crypto companies on their applications said the regulator had been slow to approve applications and was often unresponsive, a sentiment echoed by other figures in the sector.
“The process has been a total disaster from the FCA’s side of things,” the lawyer told CNBC, speaking on the condition of anonymity due to the sensitive nature of the matter.

An FCA spokesperson said it has approved just 33 crypto firms’ applications so far. More than 80% of the firms it has assessed to date have either withdrawn their applications or been rejected.
“We’ve seen a high number of the cryptoasset businesses applying for registration not meeting standards there to help ensure firms are not used to transfer and or disguise criminal funds,” the spokesperson said.
“Firms that do not meet the expected benchmark can withdraw their application. Firms that decide not to withdraw have the right to appeal our decision to refuse, including through the courts.”

Why it matters

Gemini, the crypto exchange operated by Tyler and Cameron Winklevoss, was among the first firms to get approved by the FCA.
Blair Halliday, Gemini’s head of U.K., said the licensing regime is important as it provides customers the assurance that they’re dealing with a firm that has undergone rigorous scrutiny.
“Getting a crypto asset registration in place was a critical step for crypto in this country,” Halliday told CNBC. “It gave firms that really have that desire to seek regulatory approvals something to demonstrate as a key differentiator.”
Crypto industry association Global Digital Finance’s Lavan Thasarathakumar said there has been “a lot of frustration” over the process.
“Fundamentally, it has been too slow,” Thasarathakumar said, adding that the FCA has been dealing with a “huge backlog” of applications for the register.

And some companies are still withdrawing their applications.
That includes B2C2, the London-based crypto trading firm, which recently withdrew from the FCA’s temporary register. Since Monday, all of B2C2’s spot trading activity has shifted to the company’s U.S. entity. The firm said its derivatives business is unaffected as it is handled by an FCA-authorized subsidiary.
“We are committed to ensuring this move causes as little disruption as possible and are working closely with our clients to ensure they continue to have a seamless trading experience with us,” a B2C2 spokeswoman told CNBC via Telegram.
Firms that have had their applications rejected by the FCA can appeal, but the process is a long one and could need to go through the courts.
A tribunal recently sided with the FCA’s decision to refuse an application from the crypto exchange Gidiplus.

Brexit dividend?

Mauricio Magaldi, global strategy director for crypto at the fintech consultancy 11:FS, said the current regulatory direction of the U.K. puts the country at risk of falling behind the U.S., European Union and other regions.

President Joe Biden has signed an executive order calling for coordination from the government on oversight of digital currencies, while EU lawmakers recently voted down a proposal that would have effectively banned bitcoin mining in the bloc.
“While major jurisdictions are spotting the opportunity and the risk, the U.K. is emphasising the risk,” Magaldi told CNBC. “By moving too fast and too narrow, rules and timeframes create hurdles to crypto firms that could potentially displace them from the U.K. market.”
Industry representatives fear this could put the U.K. at a disadvantage at a time when it is vying to be a global leader in financial innovation post-Brexit. The country is home to a thriving fintech industry, attracting nearly $12 billion in investment last year.
But fast-growing fintechs like Revolut and Copper may soon be forced to wind down their crypto activities in Britain and move offshore if they don’t make it onto the full register. Both companies declined to comment when contacted by CNBC.
Firms like PayPal and Coinbase, which sell crypto services in the U.K. through overseas subsidiaries, will be unaffected. More

The SEC on Monday unveiled a proposal to expand the climate-related disclosures that companies make. Officials think it will help investors make more informed decisions.
Commissioner Allison Herren Lee called climate risk “one of the most momentous risks to face capital markets since the inception of this agency.”
If adopted, the rule could directly impact individuals who buy company stock and corporate bonds. It may indirectly affect investors in mutual funds and ETFs, pensioners and society more broadly.

Gary Gensler, chairman of the Securities and Exchange Commission, at the SEC headquarters in Washington, on July 22, 2021.
Melissa Lyttle/Bloomberg via Getty Images

The Securities and Exchange Commission on Monday unveiled a sweeping proposal to expand investors’ insight into the threat that climate change poses to public companies and how they contribute to a warming planet.
If adopted, the proposal would have a far-reaching impact across the spectrum of investors, according to legal and financial experts.

Here’s what investors need to know about the 510-page rule.

What is it?

The SEC proposal concerns disclosures that all publicly traded companies make to investors on a regular basis.
The agency is trying to require a minimum level of climate-related reporting as part of this disclosure framework.

The title of the proposed rule — “The Enhancement and Standardization of Climate-Related Disclosures for Investors” — outlines its broad goal.

Why is the SEC doing this?

The SEC requires publicly traded companies to be transparent about risks and other information they deem “material” to the firm. That can encompass a broad range of items, from cybersecurity risk to geopolitical risk, for example.

Such disclosures are the backbone of the agency’s regulatory regime, according to Erin Martin, partner at the law firm Morgan Lewis and a former attorney at the SEC.
Investors use the reports to assess a company’s financial health and governance, for example, which in turn impact decisions to buy, hold or sell a company’s stock or bonds.

Aerialperspective Images | Moment | Getty Images

SEC officials say they’re responding to investor demand for transparency around climate-change risk — which Commissioner Allison Herren Lee on Monday called “one of the most momentous risks to face capital markets since the inception of this agency.”
Human-caused climate change has fueled hotter temperatures and drier conditions across the world, and scientists widely believe it’s contributing to worsening disasters like hurricanes, wildfires and heatwaves. The last seven years have been the hottest on record.
That can affect companies in the form of credit risk, market risk, insurance or hedging risk, operational risk, supply-chain risk, reputational risk and liquidity risk, among others, Lee said.  

Not all officials agree, though. Commissioner Hester Peirce, who voted against the proposal, thinks it oversteps the SEC’s authority and places the interests of environmental activists ahead of other shareholders, among other criticisms.
“[The proposal] forces investors to view companies through the eyes of a vocal set of stakeholders, for whom a company’s climate reputation is of equal or greater importance than a company’s financial performance,” Peirce said.
The SEC approved the proposed rule in a 3-1 vote.

What types of disclosures?

The proposal would require many tranches of disclosure.
For example, companies would have to detail the impact of “physical” risks (such as a severe ice storm or hurricane) on their bottom line, and which properties and operations are subject to those risks, SEC commissioner Caroline Crenshaw said.
They’d also answer questions like: How might future hurricane seasons impact the company’s business in the short, medium and long term? she said.
Companies would also need to disclose “transition” risks. For example, how easily might a company adapt to a less-carbon-intensive economy, or insulate its business from physical risks?

The Holy Fire at Lake Elsinore, California, on Aug. 9, 2018.
Kevin Key / Slworking | Moment | Getty Images

Companies that made climate targets or commitments would have to disclose those, and their plans to achieve them.
They’d also disclose their greenhouse-gas emissions, both direct (from sources owned or controlled by the company) and indirect (from electricity and energy used by the company).
Some (but not all) would report a third tier of emissions further down the supply chain (in the production and transportation of goods from third parties, or employee commuting or business travel, for example).
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Emissions data, which would be reviewed by a third party, helps investors understand how revenues and expenses may be impacted as the U.S. transitions to a lower-emissions economy, and offer insight into how companies are meeting climate pledges, SEC officials said.  
“Climate risk is not unlike any other risk that can affect a company’s performance,” said Dylan Bruce, financial services counsel for the Consumer Federation of America, an advocacy group.

OK, great. But is this a big deal?

Yes. Currently, companies tell investors about climate risk if they think it’s material.
About a third made some type of disclosure in 2019 and 2020, according to SEC chair Gary Gensler. Others may do so outside the SEC’s jurisdiction, perhaps in sustainability reports, experts said.
But the proposed rule asks all public companies to provide this type of disclosure.

I can’t talk to an asset manager today who says they’re not concerned about climate at all. No one says that.

global head of sustainability research at Morningstar

“It’s not a company-by-company determination,” Martin said. “The SEC is saying it believes all this information is material information companies should be providing to the general public.”
Companies also don’t necessarily know what information to report now — meaning its scope, specificity and reliability varies, and investors don’t get uniform data, Crenshaw said.

What does this all mean for investors?

The rule’s impact goes beyond individuals who buy a company’s stock, experts said.
For example, asset managers who pick stocks and bonds for mutual funds and exchange-traded funds, and institutions that oversee pensions and endowments, may opt to limit holdings in a company that appears overexposed to climate risk. These sorts of decisions may indirectly impact millions of investors.
“It’s not just climate-aware funds — it’s all funds,” said Jon Hale, the global head of sustainability research at Morningstar. “I can’t talk to an asset manager today who says they’re not concerned about climate at all. No one says that.”

A section of the Sausalito/Mill Valley bike path is seen covered in ocean water in Mill Valley, California, on Jan. 3, 2022.
Josh Edelson | Afp | Getty Images

Even index-fund managers who don’t actively pick stocks and bonds will have more ammunition to influence change at companies, he said.
Index-fund providers like Vanguard Group and BlackRock are big shareholders in public companies, and can leverage that power to sway managerial decisions during shareholder meetings if they feel companies aren’t doing enough to address climate risks, for example, Hale said.

Might there be an impact beyond investing?

There could be a bigger knock-on environmental and societal effect, experts said.
The SEC’s purview is the realm of investing. But there could be an inadvertent public-relations aspect to the disclosure requirements, for example. Might a big greenhouse-gas emitter redouble efforts to rein in their carbon footprint, fearing public blowback for its emissions disclosures?
It’s too soon to tell, but this is just one of the potential cascading effects of the rule, experts said.

When does it take effect?

Not for a while.
The proposal kick-started a 60-day period of public comment. The SEC will then assess feedback and incorporate it into a final version of the rule. If a final rule takes effect in December this year, the largest public companies would start reporting in 2024, and the smallest in 2026, according to the SEC.
But even that timeframe may be delayed by a lawsuit, which is a near certainty, experts said. More