Saudis go green

Saudi Arabia is joining the net-zero club, with plans to go carbon neutral by 2060. Neighboring Bahrain will also join the pledge, while Kuwait will be involved with the Saudi commitment. While the Kingdom's framework aligns with China and Russia, the time frame falls short of other large economies like the U.S., U.K., and EU, which all are targeting net-zero by 2050.

Caveat: The promise doesn't include emissions from the massive amounts of oil Saudi Arabia exports around the globe (it pumps one in 10 barrels of oil consumed each day). It will also allow the Saudis to continue burning fossil fuels for decades to come, as well as invest in new oil-and-gas development. Instead, the Kingdom plans on reaching its net-zero target by cutting emissions of methane (30% by 2030) and creating a "carbon circular economy," which includes carbon capture, utilization and storage technologies.

"This protects the leading role of the Kingdom in strengthening the security and stability of global energy markets, in light of the maturity and availability of the necessary technologies to manage and reduce emissions," Crown Prince Mohammed bin Salman said during a speech at the Saudi Green Initiative forum, which comes just days before the COP26 climate meeting in Glasgow, Scotland.

Go deeper: Saudi Energy Minister Prince Abdulaziz bin Salman has also argued that 2050 targets (like those set by the IEA) would cut supply before global demand drops significantly. That can risk a heavy oil price spike and burdening economies that are overly dependent on importing/exporting oil and gas. Some have even called the most recent price spike the first major energy crisis of the clean power transition, with the Biden administration calling on OPEC+ to increase oil production as crude hit multi-year highs and Russia offering to export record volumes of vital fuel to the EU.

Carbon offsets?

Many companies are turning to carbon offsets to help meet their "net-zero" pledges, but tallying that data can be tricky. It gets even more complicated with regulatory reporting requirements of greenhouse-gas emissions, which are increasingly being seen in Europe and the U.S. Already, the SEC is working on a potential climate-disclosure regulation and some 90% of companies in the S&P 500 currently produce sustainability reports.

Quote: "You have people saying some of these things [carbon offsets] are rubbish and other people say no, they're really important," said Thomas Lingard, Unilever's sustainability director. "It's super confusing to people and that can’t be the desired state for a world that is rapidly trying to deal with the climate crisis." Another job for the COP26?

Currently, the most widely-used international framework is the Greenhouse Gas Protocol, which divides emissions into three categories. Those resulting from company operations are called Scope 1, while those resulting from energy the company buys are dubbed Scope 2. The most difficult ones to calculate are Scope 3, which are emissions that are related to a company's product, but are produced by suppliers and customers.

Outlook: Prices for carbon offsets vary widely, ranging from a few dollars for credits linked to conserving grasslands, to thousands of dollars for capturing carbon to store in the ground. Their unclear structure also compounds the issues for businesses, regulators and investors to size up the effectiveness of projects that generate offset credits. According to Morningstar Direct, more than $51B flowed into sustainable funds in 2020, notching more than a quarter of overall U.S. fund flows and doubling the 2019 record.

Deal in sight

Democrats are getting closer to finalizing an agreement on Biden's economic agenda that would allow for a bipartisan infrastructure bill to move forward. "We have 90% of the bill agreed to and written, we just have some of the last decisions to be made," House Speaker Nancy Pelosi said on CNN's State of the Union. The social spending measure previously stalled in the Senate due to objections from West Virginia's Joe Manchin and Arizona's Kyrsten Sinema, who cited concerns about hefty expenditures.

By the numbers: What had been a sweeping $3.5T plan is now being looked at as a $1.75T package, according to sources, but that figure may go higher.

Manchin appears to be on board with White House proposals for new taxes on billionaires and certain corporations. Earlier, the White House has floated a 15% minimum corporate tax rate that's designed to ensure all companies pay what President Biden calls their "fair share." If an agreement is reached by the week's end, a House vote on a separate $1T bipartisan infrastructure bill could happen before Sunday, when a series of transportation programs expire (Biden also heads to Glasgow at the end of the week).

Quote: "It is less than what was projected to begin with, but it's still bigger than anything we have ever done in terms of addressing the needs of America's working families," Pelosi continued. "I think we’re pretty much there now, it's just the language of it."

Transitory thesis

The inflation debate heated up over the weekend after Twitter (NYSE:TWTR) CEO Jack Dorsey weighed in on price pressures. "Hyperinflation is going to change everything. It’s happening," he wrote. "It will happen in the US soon, and so the world." To another reply, he tweeted that it is "Not a wish. Nor do I think it’s positive at all."

Snapshot: Inflation is one of the biggest concerns for the economic recovery and the stock market, while the Federal Reserve recently shifted its strategy to allow higher inflation for longer to recover (flexible average inflation targeting, or FAIT). It argues that the recent spikes, with core CPI at 4% year-on-year, are transitory, though Fed Chair Jay Powell said this week they could last well into next year.

Former Treasury Secretary Larry Summers, who served under the Clinton administration, has also been making waves, ramping up the warnings about the effects that spending is having on inflation. "I think he's wrong. I don't think we're about to lose control of inflation," current Treasury Secretary Janet Yellen said on Sunday morning. "On a 12-month basis, the inflation rate will remain high into next year because of what's already happened. But I expect improvement... by the middle to end of next year, second half of next year."

Bottom line: Prices have also spiked up due to supply chain disruptions and labor shortages as demand increases with the reopening of the economy. In the latest job openings and labor turnover report released earlier this month, there were more than 10M job openings in August, and a record 2.9% of workers quit their jobs. (106 comments)

Today's Markets

In Asia, Japan -0.7%. Hong Kong flat. China +0.8%. India +0.2%.
In Europe, at midday, London +0.5%. Paris -0.1%. Frankfurt +0.3%.
Futures at 6:20, Dow flat. S&P +0.1%. Nasdaq +0.3%. Crude +0.9% at $84.51. Gold +0.2% at $1800.20. Bitcoin +2.6% at $62631.
Ten-year Treasury Yield unchanged at 1.66%

Today's Economic Calendar

8:30 Chicago Fed National Activity Index
10:30 Dallas Fed Manufacturing Survey

Companies reporting earnings today »

What else is happening...

Bitcoin (BTC-USD) makes the Barron's cover, slides below $60K.

Tesla (TSLA) roundup: Price hikes, FSD pause, Morgan Stanley raves.

HSBC's (NYSE:HSBC) pre-tax profit jumps 76%; plans $2B buyback.

Supply crunch pushes crude oil to record ninth straight weekly gain.

Digital World Acquisition (NASDAQ:DWAC) likely to see more large swings.

Much-needed rain may provide relief for California utilities - Barclays.

Sibanye-Stillwater (NYSE:SBSW) nears $1B deal to buy Brazil commodity projects.