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OPINION: Jeremy Leggett

In my quarter of a century of warning about the climate change threat and advocating the renewable-energy solution, I have never seen anything worry the fossil-fuel incumbency the way the carbon bubble debate has this year.

As a consequence, I expect to see a major diversion of investment from fossil fuels to clean energy before long. Let me explain that uplifting prognosis using an account of recent history.

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 had 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.

In light of this, 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 $6trn, if last year’s spend is replicated.

If you are a diehard carbonhead, this argument is new and dangerous. It does not use ecological or moral levers to try to stop the enormous amounts of capital flowing dysfunctionally to cook 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 the capex would be better returned to them as dividends.

Immediately we scored a hit. HSBC oil and gas analyst Paul Spedding said at the launch: “This 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.

Positive media coverage of the Carbon Tracker analysis and the Fossil Free campaign spread rapidly. On 4 May, The Economist magazine 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 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 $3bn 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 as hard as they could. 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 “long-term, 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.

Global investment in renewables has grown steadily to more than $250bn a year. The quantity of renewables capacity added annually exceeds that of fossil fuels and nuclear combined. Expect these trends to accelerate as the carbon-bubble risk becomes more widely appreciated.

We may yet come to dance on the graves of those who would burn the planet simply to defend a failed belief system.

All the evidence for this article can be found here.

Jeremy Leggett is the founder and chairman of UK-based PV company Solarcentury. His new book, The Energy of Nations: Risk Blindness and the Road to Renaissance, will be published by Routledge in September. The first chapter can be read here

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