What future for investments in fossil fuels?

Fossil fuels built the world as we know it today, fueling our global economy and producing most of the world’s electricity. But over the past 170 years, humans have burned so much oil, gas, and coal that the earth’s average temperature is now higher than at any time in the past 125,000 years.

And we are already suffering the consequences, according to the latest assessment of the Intergovernmental Panel on Climate Change (IPCC). The long-awaited report presented “undisputed” evidence that carbon pollution and greenhouse gases from human activity are causing profound changes in our world: more extreme heat waves and fires, increased rainfall and flooding, longer droughts and a shrinking Arctic.

Energy systems must adapt

The IPCC report didn’t directly mention fossil fuels, but that hasn’t stopped other leading organizations from calling them. Earlier this year, G7 leaders agreed to begin phasing out overseas fossil fuel financing and end their continued support for coal power. And in May, the International Energy Agency (IEA) released a landmark report that called for a complete halt to new investment in oil, gas and coal supply after this year – despite the growing number of countries. committing to zero net emissions for years to come. decades.

“This gap between rhetoric and action must be closed if we are to have any chance of reaching net zero by 2050,” said Fatih Birol, executive director of the IEA. “It requires nothing less than a total transformation of the energy systems that underpin our economies.”

Part of this transformation will come from investors seeking to protect the future value of their assets. Sarah Brown, an electricity transition analyst at UK-based energy think tank Ember, told DW investors and insurers increasingly face risks – related to extreme weather events , energy transition or changes in regulations.

“The recent findings of the IEA and IPCC reports shouldn’t have come as a surprise, and there are many national policies and global commitments that mean that investing in new fossil fuel assets has no impact. economic sense and hasn’t been for quite some time, ”she said.

Brown highlighted several coal-fired power plant projects across Europe that have been canceled in recent months, including in Serbia, Bosnia and Herzegovina and Turkey. “Utilities, financial institutions, engineering companies and governments all see that there is no future for coal-fired power generation,” she said.

“Fossil fuels are not going to disappear overnight”

But Samantha Gross, director of the Energy Security and Climate Initiative at the U.S. research group Brookings Institution, doesn’t think investors will be so quick to ditch fossil fuels. She pointed out that despite advances in renewable energy, the world has yet to find a reliable substitute for oil and natural gas, which she called “the lifeblood of the modern economy”.

“We are certainly seeing pressure from many different camps to move away from investing in fossil fuels,” she told DW. “And I don’t disagree with the sentiment. The challenge will be that fossil fuels are not going to disappear overnight.”

Gross said oil and gas have more energy per weight than other fuel sources, making them essential for industrial processes that require very high heat, or for industries like aviation, transportation. maritime and long-distance trucking, where electric vehicles are not yet up to the task. Not to mention that more than three quarters of the world’s electricity is still produced by fossil fuels, according to the latest analysis of the oil giant BP.

“You’re not going to see a sudden halt to all investments in fossil fuels. But I think what you will see is that the more expensive, riskier investments will start to go away first. And I think it does. process certainly begins, “says Gross.

She believes the industry is approaching a “tipping point” on carbon-intensive processes like oil sands development or hydraulic fracturing, with some investors now turning to inexpensive renewables with good rates of return. yield.

“[This is] something that investors do because there is money to be made in there. This is how it really is. It sounds a bit rude, but it’s true, ”she said.

Climate change in Exxon, Chevron

While the trend to make greener investments has been more visible in Europe, with pension funds in countries like the UK, Sweden and Norway taking action to limit climate-related exposure, there are has had some movement in the United States as well – and not just with pensions.

On May 26, 61% of Chevron shareholders backed a proposal asking the oil company to reduce its total greenhouse gas emissions. On the same day, activist hedge fund Engine No. 1 took three seats on the board of Exxon Mobil after a months-long campaign that highlighted the oil giant’s focus on fossil fuels was a “existential risk”.

In May, a Dutch court ordered Shell to reduce its carbon emissions by 45% by 2030 from 2019 levels.

Speaking to investors in July, CEO Darren Woods said Exxon Mobil aims to play “a key role in the energy transition while continuing to increase shareholder value,” highlighting developing markets for capture and storage carbon, hydrogen and biofuels. However, Woods – who had campaigned against the No.1 Engine – warned that “huge changes in strategy” are not to be expected.

Nonetheless, said Gross, “It’s quite astonishing what they were able to do,” stressing the importance that it was investors who pushed for change, rather than external pressure. “Nothing against NGOs, but when investors start talking, they listen.

Fight to stay relevant

But some companies are still struggling to delay the inevitable phase-out of fossil fuels and lost profits. German utilities RWE and Uniper, for example, announced in April their intention to sue the Dutch government over its plan to end coal-fired power generation by 2030, citing billions in damages.

Fossil fuel messaging also plays its part. InfluenceMap, a think tank that studies the impact of corporate lobbying on climate policy, revealed in 2019 that the five largest publicly traded oil and gas companies – Exxon Mobil, Royal Dutch Shell, Chevron, BP and Total – have spent over $ 1 billion (€ 853 million) campaigning against climate policies or buying deceptive ads since the 2015 Paris Agreement. The aim is to promote oil and gas as part of the the solution to the climate crisis, as well as new technologies, to keep them as long as possible in the energy mix.

“Many large energy companies appear to be very focused on transition paths that only modestly adapt their current business models, relying heavily on carbon capture and storage. [CCS] to mitigate their emissions or produce blue hydrogen from natural gas, ”said Brown, adding that these approaches also carry significant climate and financial risks.

While acknowledging the potential of greenwashing, Gross said companies using these bridging technologies could potentially have skills that would help further develop renewable energies like geothermal power or offshore wind farms.

“Certainly, some companies understand that this is where the future is headed. They want to continue to be relevant in the energy sector and therefore focus on how they can be relevant in an industry that has a different shape than the one we have now, “Gross said.” They understand which direction the wind is blowing and try to move accordingly. “

(This article by author Martin Kuebler originally appeared on Deutsche Welle.)

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)

About Eleanor Blackburn

Check Also

Autumn 2021: Political forecasts and panorama

Anton Rovenskyy, Master in international relations, international political scientist The season of low political activity, …

Leave a Reply

Your email address will not be published. Required fields are marked *