The Cornered Dinosaur and the Carbon Hostages

While the climate is still being more and more destabilised, climate advocates are making headway.  But campaign groups should beware, because as tightening emission regulations, the encroachment of renewables into energy markets and ratcheting public demands for action on pollution, all start to combine, they threaten to strangle the market for fossil fuels. The industry may see that its very future is at stake, and react accordingly.

Having given up on transforming themselves into a benign energy industry (see below), the fossil fuel producers have nowhere to go.  Without some form of rational government intervention to plan a phase-out pathway, and to guide investment, the end game of fossil fuels could get very nasty indeed.

The current furore over the ‘Greenpeace Arctic 30’ held in Russian jails after protesting against Gazprom’s Arctic drilling, is a dramatic collision of ethics and business as usual but future conflicts may spread far wider.  The Arctic 30 have not literally been taken hostage by Russia or even Gazprom but they are hostages to an ethical imperative to restrain the growth in carbon pollution, and the failure of governments to do the same: carbon hostages.

Many more NGOs could soon find themselves in the firing line, even those who do not leave their desks.  If the industry sees all those advocating action on climate as a vital link between public opinion and political leadership which needs to be severed, campaign groups might seem one of the softer available targets.

Unfortunately, the lumbering UNFCCC process (next stop Poland) is ill equipped to deliver political custody of the carbon end game. Instead it is being left to play itself out in ways which may prove as chaotic as climate change itself.

Why The Industry Is Right to Worry

The coal industry has particular reason to be worried but oil and gas are not far behind.  Without government intervention to give investors certainty, conflicts over energy and climate may soon get a lot more acute, as profits and investments are on the line.  There are a number of reasons. Here are just seven of them.

First, coal markets are starting to close.  Despite the surge in coal production over recent years, and the current boom in gas, the fossil fuel industry has good reason to feel that the walls may be closing in.  Demand for coal in international markets is dropping with US and Australian exports both affected.   Goldman Sachs has warned that “the window to invest profitably in new thermal coal mines is closing”.

A major factor, is China’s new energy plan, driven by changing demands of the Chinese public, who want cleaner air, which means burning less coal.  As Harri Lammi has pointed out in my blog, renewables investment may end growth in coal emissions in China in the next few years.

Second, renewables are eating into the market for fossil-fuelled electricity. The costs of renewable energy, especially solar pv for electricity are plunging, itself driven by consumer demand, scaling up and ‘Moore’s Law’ type technological advances.  It is a structural reality.

In April Bloomberg New Energy Finance forecast annual investment in new renewable power capacity rising two and a half-fold to more than four and a half-fold between now and 2030, driven by improving in the cost-competitiveness of wind and solar technologies relative to fossil fuels, and, more hydro, geothermal and biomass.  IEA’s second-annual Medium-Term Renewable Energy Market Report predicts renewable generation will grow 40% in the next five years and power generation from renewables will exceed natural gas, and be twice that of nuclear energy globally by 2016. The ‘gas bridge’ then, looks much shorter than expected.

In 2011 global investment in renewables hit a record $257.5 billion, exceeding by $40 billion the amount invested in new fossil fuel capacity.  Worldwide, UNEP reported that renewables made up over half of all new electricity capacity in 2011-2.

Third, coming over the horizon, are electric cars.  Imagine the impact on the collective consciousness once ‘gas stations’ no longer sell ‘gas’ (petrol and diesel to the majority of us, living outside the US).

Fourth, while cash flows into renewables it is ebbing away from fossil fuels thanks to growing disinvestment campaigns. Damian Carrington has reported that an Oxford University study shows ‘A campaign to persuade investors to take their money out of the fossil fuel sector is growing faster than any previous divestment campaign and could cause significant damage to coal, oil and gas companies’.  The direct financial impact, most prominently associated with student lobbying of universities to delete fossil fuels from their portfolios is , as it noted, is far less than the political, social and psychological impact.  These are the decision-makers of tomorrow.

Nor is this restricted to activists and students. For example last week WWF Norway called for 5% of the $750bn Sovereign Wealth Fund of Norway to be spent on renewables and disinvested from Tar Sands.

Fifth, regulatory action is still driving a shift away from fossil fuels, especially coal.  Not just the Chinese energy plan for example but Obama’s carbon limits for new coal plants.  The World Bank has said it will now only grant finance to coal power in “rare circumstances”.

Sixth, although media commentary still tends to paint the opposite picture, an avalanche of polling data shows the public believes climate change is real, happening, a bad thing and that renewable energy is preferable to fossil fuels.  Moreover, despite great anxiety amongst climate-advocates in advance of the IPCC Fifth Assessment Report released in September that sceptic lobbyists and their media allies would spin the idea that climate change was no longer such a threat, overall the media coverage focused on growing scientific certainty.  If the sceptics were going to win a major battle for public perceptions, that was probably it.  They failed.

Seventh, with oil increasingly hard to find more of, the prospects for making money from fossil fuels increasingly rely on gas, which in many applications (eg power generation) is also in direct competition with renewables.

In his essay ‘Collision of Climate and Carbon’ for Montrose Journal in September, Tom Burke of E3G noted that because solar and wind are at grid parity with fossil fuels,

“This led a recent report from UBS to talk about an ‘unsubsidised power revolution’. This is a prospect that was previously unthinkable for the electricity generation. In 2012, renewable power in Germany took a 22% share of consumption. This sparked an 11% fall in natural gas fuelled electricity and a steep fall in the share price of German utilities RWE and EoN, both of whom were forced to mothball gas fired plants that had become uneconomic to operate”.

Then there is fracking. In large scale development in some places, ‘fracking’ to get at ‘unconventional gas’ is also proving highly controversial and often unpopular in affected regions.  And in countries like the UK, rising gas prices are widely resented.  Gas has gone from being unobtrusive, and often seen as a relatively clean and benign fuel, to an expensive and controversial one. Many politicians are wary.

Nowhere to Go

It used to be good, if you were concerned that industry transitioned to sustianability, if the fossil fuel industry was worried about its future, because it could turn to green energy production. Now the industry is not in a position to exploit the growth in the renewables market, because for practical purposes it has abandoned green energy.  It has nowhere to go but to continue down the fossil route and to fight for it like a cornered dinosaur.

Many campaigners may never have believed it but back in the 1990s, in some oil companies at least, there were serious attempts to explore alternatives.  I took part in a ‘futures’ strategy exercise with Shell, where their planners spoke openly about their assumption that fossil fuels were going to be replaced by electrical energy, well before they ‘ran out’.  On another occasion a Shell executive told me “at least we are not in Tar Sands” (or at the time, not in them very much).  BP also became the world’s biggest solar pv maker.  But, as I wrote in a blog earlier this summer, the fiscal signal that they expected from governments – making investment in renewables more rewarding than looking for new oil or gas – never came.  The industry reverted to ‘business as usual’.

So Shell withdrew from investing in wind and solar in 2009.  BP, which had once rebranded itself as “Beyond Petroleum”, abandoned solar in 2011, and dropped wind power in 2013.  The picture is much the same for other oil majors: none make any significant investment in renewable energy, although many still heavily feature renewables in their advertising.

Consequently, in the end game for fossil fuels, Arctic oil and gas, fracking for gas, and Tar Sands (which require those pipelines), are vital last resorts for the industry.  Tax breaks and other political support for new reserves, are necessary for the industry to keep profitable.  Which means in turn that public opinion is critical, and that means in turn, that public perceptions of campaigns to disinvest, to oppose new oil and gas, or to stop using coal, are crucial.

Unfortunately, when that signal failed to materialise and then politicians tried to distance themselves from the failure of the Copenhagen political climate talks, the fossil fuel industry plunged into investments in new fossil fuel developments.  It will feel more and more cornered if they see the chances to convert geological resources into marketable ‘reserves’, slipping away. Carbon Tracker has pointed out that last year the industry spent $674billion to find and develop new potentially stranded assets.  Earlier this year HSBC Global Research calculated that if carbon emissions are cut so as to limit climate change to 2.C, it could wipe 60% off their share value.

That’s quite an incentive, and is a reason why it would be better for governments to give investors certainty, by regulating to create phase out pathways so that money could be used most effectively, rather than encouraging an increasingly urgent conflict between those trying to save the climate and those trying to develop fossil fuels.



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