Renewables a safer investment bet than the unburnable carbon bubble
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dysfunctionally to overheat the planet. It does not even require governments to regulate emissions in the way they have promised. It simply invites investors to recognise that they might, and that capex would be better invested in smarter things. Immediately we scored a goal. HSBC oil and gas analyst Paul Spedding said that our report “makes it clear that ‘business as usual’ is not a viable option for the fossil fuel industry in the long term. Management should already be looking to new business models that reduce the risk of stranded assets destroying shareholder value. In future, capital allocation should emphasise shareholder returns rather than investing for growth.” Of course, the moral arguments, made in parallel, make an even stronger case. In the US, the Fossil Free campaign, launched by a coalition of student organisers and groups such as 350.org, has been arguing for divestment of fossil fuels on moral grounds. As a result, more than 400 US university campuses and dozens of cities, including Seattle and San Francisco, have campaigns to promote divestment from hydrocarbons. Media coverage of the Carbon Tracker analysis and the Fossil Free campaign has spread rapidly. On 4 May, The Economist concluded that “neither public policies nor markets reflect the risks of a warmer world”. On 16 May, The Wall Street Journal concluded that “the concept of a carbon bubble has gone mainstream”. On the same day, the first carbon bubble resolution at an energy company annual general meeting won strong support: 20% of shareholders in Consol Energy supported a request that the US coal and gas giant report
Carbon Tracker & Grantham Research Institute, Lse 2013
have been advocating renewables as the backbone of a global response to the grave danger of climate change for a quarter of a century now. In all that time, I have Jeremy Leggett, never seen anything Chairman of solarcentury, solarAid trouble the deeplyand Carbon Tracker entrenched fossil fuel incumbency the way the carbon bubble debate has this year. Let me tell the story chronologically. On 18 April, Carbon Tracker, a small group of financial analysts that I chair, published its second report. In our first report in 2011, we calculated the amount of “unburnable carbon” in coal, oil and gas reserves if governments meet their commitments to keep the rise in global temperatures below the danger threshold of 2° C. The figure we reached for this “stranded” carbon was 80%. We also analysed its distribution, company by company and stock exchange by stock exchange. Taking this as a starting point, our second report looked at the capital expenditure that could be wasted over the next ten years by listed fossil fuel companies in chasing reserves that will have to be left in the ground. The answer is more than $6 trillion, if last year’s spend is replicated. There is a lot that the renewables industries could do with even a fraction of that. The stranded-asset argument is new and dangerous for the incumbency. It does not use ecological or moral levers to try to stop the enormous amounts of capital flowing
on the financial risks associated with having to leave most of its coal reserves in the ground. Entering June, Rio Tinto announced that it wanted to exit $3 billion of Australian coal assets. On 10 June, the International Energy Agency concluded that 60-80% of coal would need to stay in the ground. Ten days later, coal diehards hit back. The Australian Coal Association warned that activists were using “invalid slogans” as part of a “radical campaign” to scare off investors, in an effort “to disrupt and ultimately destroy the Australian coal industry”. On 8 July, Norway’s biggest insurance company, Storebrand, announced that it was ditching 19 companies with interests in coal and tar sands. Storebrand will prefer “longterm, stable returns” henceforth. Four days later came the development that might yet prove the clincher for renewables advocates. Impax Asset Management produced a report showing that fossil fuel divestment can increase returns — the more so if you invest in a mix of clean energy. The bad news for the incumbency continued through July. The World Bank announced that it would be limiting financing of coal-fired power plants to rare circumstances where no feasible alternatives are available. The US Export-Import Bank declined to participate in the financing of a large coal-fired plant in Vietnam on environmental grounds. The European Investment Bank announced it would be dropping coal investments. Goldman Sachs released a report concluding: "we believe these events are indicative of a gradually worsening outlook for thermal coal demand, with implications for equity investors in particular." Meanwhile, global investment in renewables has grown steadily to more than $250 billion a year. The quantity of renewables capacity added annually exceeds that of fossil fuels and nuclear combined. We can expect these trends to accelerate as the carbon bubble risk becomes more widely appreciated.
Jeremy Leggett's book The Energy of Nations: Risk Blindness and the Road to Renaissance is published by Routledge on September 26th (see www. jeremyleggett.net/books). This article is an edited update of his latest monthly column for Recharge Magazine. Carbon Tracker revealed that $674bn is being spent each year to develop fossil fuel resources into proven reserves, adding further to levels of 'unburnable carbon
Rea news summer 2013
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