Earlier this week, I spent a day touring fuel stations. Rest assured, I am still fully employed by the Financial Times. But I wanted to explore the hydrogen market in the only US state that offers retail hydrogen fuel for cars: California.
It is a fascinating case study about the global race to cut carbon emissions — one where the world’s largest automaker and the most populous US state are intertwined. Check out my report below.
But first, I had to try it. How does it work to fill up with hydrogen? What does it smell like? With my corporate credit card, I bought 1kg of hydrogen. Mind you, I didn’t have a car with me. So I was a little nervous about what would happen next. From a Shell station after lunch, could I trigger an Oppenheimer-like explosion that would ignite the world’s atmosphere? This is hydrogen after all. The pump starts thumping and . . . Well, I think I’ll save it for the sequel.
Also today we have from Kenza the story of Paul Watchman, the father of the UN Principles for Responsible Investment, who recently passed away. Please read Kenza’s report about his legacy below. Thanks for reading. — Patrick Temple-West.
The human face of corporate law’s climate anxiety
Professor Paul Watchman, who sought to make social justice warriors out of investors by reframing the way they understood fiduciary duty, was part-activist, part Magic Circle lawyer.
The Glaswegian was best known for penning a legal text that underpinned the UN’s Principles for Responsible Investment in 2005. The movement has since grown to include more than 5,000 investors with $121tn of assets under management.
Watchman, who died this month at the age of 70 and whose funeral will be held today, was known to investors, lawyers and academics as a redoubtable thorn in the side of companies that either greenwashed or attacked woke capitalism.
He did this even as his own career highlighted some of the paradoxes in the corporate world’s turn towards cleaner capitalism. Watchman advised companies including big polluters as a partner at the law firm Freshfields Bruckhaus Deringer between 1992 and 2006.
Alongside this, the pro-bono UN report Watchman authored as a young partner at Freshfields concluded that investors who did not take sustainability seriously could be in breach of their fiduciary duty (not the other way round, as Republican attorneys-general in the US have recently argued). This was based on close legal analysis of capital markets frameworks in nine countries including the UK and US. This idea was endorsed in subsequent years by the UK’s Law Commission.
“The message was that the long-term interests of the UN in the context of security, peace, environmentalism and humanitarianism were aligned with the long-term interests of asset owners,” recalled Watchman’s longtime friend Paul Clements-Hunt, who commissioned the report as then head of the UN’s Environment Programme Finance Initiative.
Watchman’s “bulldozer” approach led to some pushback at the time, both from inside Freshfields and outside the company, the late professor told friends. “It is unsurprising that by concluding a longer-term horizon was necessary and ESG was permissible, lawful and sometimes required to discharge fiduciary duties . . . we offended those who wished for short-term profits and large bonuses in the next quarter,” he wrote online.
Even as the price for speaking out of turn in the corporate world grew in recent years, Watchman remained unafraid to speak his mind. Just last year he told Moral Money that corporations’ risk of pursuit by competition authorities due to climate action had been “exaggerated” — even as he worked as a special legal adviser to the Net-Zero Insurance Alliance, which used this risk as justification to endorse insurers even if they continued to do business with companies developing new coal mines.
The emphasis on this highly politicised “antitrust threat”, which later helped precipitate high-profile departures of insurers such as Axa and Allianz from the NZIA earlier this year, was similar to the misleading arguments made in previous decades in defence of the tobacco and fossil fuel industries, he argued.
In recent years Watchman delighted in using LinkedIn to point the finger at perceived wrongdoing. “J’accuse!” he wrote in a scathing critique of UK cabinet ministers after a report that they were at risk of court action for not acting fast enough on climate change. “DWS????!” he joked this year, when Deutsche Bank said revenues from its ESG business would grow in future years, a reminder of the greenwashing scandal the German bank’s investment arm had tried to draw a line under.
One of Watchman’s final projects was a leadership role at the non-profit Lawyers for Net Zero, which focuses on helping in-house lawyers steer companies towards sustainable long-term strategies. Adam Woodhall, its founder, told Moral Money that Watchman’s big concern was “corporate hubris, he was always poking people in the chest about that . . . He wanted to talk about things others wanted to sweep under the carpet.”
Watchman had authenticity that money could not buy. He spent formative years as a professional footballer in Scotland (he claimed to have rejected the offer of a contract from former Manchester United coach Alex Ferguson). He then helped found the city’s first legal advice clinic and specialised in the laws protecting renters and homeless people.
“From the East End of Glasgow to the UN headquarters in New York it is a journey, enjoy it,” he advised online this year. “If you are going to be good in your career. Think integrity.” (Kenza Bryan)
On a hydrogen hunt in San Francisco
Although US electric car sales are accelerating, hydrogen fuel cell cars have not shared in the riches. This is a growing problem for Toyota, one of the biggest hydrogen car manufacturers. Gillian previously wrote about Toyota’s hydrogen efforts, and while I was in San Francisco this week, I set out to investigate the market by touring local fuel stations.
California is the only state with hydrogen stations for cars. In downtown San Francisco, there are only two (both are operated by Shell). At one of these Shell stations (around the corner from Airbnb’s headquarters), a station attendant told me about 10 to 15 cars will fuel up with hydrogen during the course of an eight-hour shift. One driver who spoke with me said she bought her hydrogen-powered Toyota Mirai two years ago — and actually cancelled a Tesla order to buy it. (She declined to give her name. I would too if I were approached by a stranger in a dingy Shell station.)
But she said she was happy with her car purchase despite two problems. One being that the hydrogen fuel stations often run out of gas. She said a state website for hydrogen fuel might show the Shell stations have gas, but by the time you arrive at the station it can be gone. At other times, hydrogen fuel stations can go down for maintenance.
The other big problem is that the cost of hydrogen fuel has almost doubled from about $16 per kilogramme in July 2022, according to S&P data. To boost sales, Toyota had been giving away a whopping $15,000 worth of hydrogen — a major reason for my driver friend’s reason to buy her car. The Mirai driver said she estimated she could have driven for four years for free with the $15,000 from Toyota. But now that is down to about two years, she said. That afternoon, she spent $96 for 3.21kg of hydrogen — way more than it would cost to fill a car with petrol. Toyota has said its Mirai cars can get 350 to 400 miles of driving range on a full tank.
Jack Brouwer, an engineering professor at University of California Irvine who has worked for years on hydrogen issues, told me the reason the cost of hydrogen had surged is that state subsidies are being gobbled up by big businesses jumping into sustainable energy, such as biodiesel. These businesses “took all of the credits” that had been going to companies making and distributing hydrogen, he said. California’s legislature and governor know about this problem in hydrogen subsidies but for now it hasn’t been fixed. “Eventually, the sh*t is going to hit the fan,” Brouwer added.
Problems with infrastructure and hydrogen pricing will become more significant as California races to halt sales of new petrol-powered vehicles by 2035. If all of the state’s cars needed to be charged, California’s electrical grid would collapse, Brouwer said. Cities like Los Angeles simply cannot handle charging more and more cars and cope with all other electrical needs. California needs hydrogen cars to even out electricity demands.
Finally, all of this is a big problem for Toyota. Its hydrogen car sales are flat — exactly because of the high prices and infrastructure challenges in California. Now, the company is eyeing Europe and China as healthier markets for its hydrogen cars. If Toyota foregoes its hydrogen strategy in the US, will California continue investing in a hydrogen fuel infrastructure? It is a major chicken-and-egg situation that we will continue to follow. (Patrick Temple-West)
We reported recently on the value of Ukraine’s critical minerals for both climate change needs and national security. Our colleague Edward White wrote an excellent Big Read about a similar situation playing out in Mongolia. The landlocked country wedged between China and Russia is attempting to crack down on graft to unlock its mineral riches.