The Fossil Fuel Industry has Reason to be Nervous

– Mahatma Gandhi

Concerns about climate change, the
demise of coal and the rise of renewable energy are making the fossil
fuel industry nervous. While the fossil fuel industry initially
dismissed the divestment movement, the growing strength of the movement give them reason to be fearful.
The fossil fuel industry has a lot of skin in the game, in 2013 alone
they spent $670 billion looking for more coal, oil and gas reserves.
All of this will be worthless as we begin to seriously decrease our
consumption of fossil fuels.

ExxonMobil’s vice president of public
and government affairs, Ken Cohen, said the divestment movement is
“simply … out of step with reality.” The science
indicates that Cohen is dead wrong. There have been a vast number of
warnings coming from a wide variety of sources including, AGU,
IEA,
IPCC,
PwC,
World
Bank, and the World
Meteorological Organization, stating that our
current emissions trajectory is catastrophic.

Nothing could be more in step with
reality than moving away from fossil fuels. It is widely known that
between one half and four fifths of all known fossil fuel reserves
will have to be left in the ground if we are to have a chance of
staving off the worst impacts of climate change.

These realizations have prompted former
CEO of BP, Lord John Browne, to say that climate change poses an
“existential threat” to the industry.

Attack

To counter the divestment movement, the
fossil fuel industry has launched a coordinated smear campaign full
of lies and misinformation. Their self-described “win ugly or lose
pretty” tactics have castigated those who advocate divestment as
“anti-energy” radicals, who want to deprive people of
electricity, technology, and even food.

The coal industry is in decline and it
is lashing out as it sees the end draw near. The Australian coal
industry has attacked institutional investors, universities and
churches that have decided to divest. The then CEO of the Australian
Coal Association, Nikki Williams, called divestment campaigners
“anti-development activists attempting to bludgeon society” with
“a new morality of industrial sabotage.”

To prove its desperation, Shell even
intimated that there could be legal sanctions against Australian
National University’s (ANU) divestment announcement. Even
Australian Prime Minister Tony Abbott resorted to name calling when
he denounced ANU’s decision, referring to it as “stupid”.

In a keynote speech at the
International Petroleum Week dinner in London on February 12, Shell
CEO Ben van Beurden called fossil fuel critics “naive” and
“impractical”.

Concessions

In his speech, van Beurden conceded
that Big Oil has “credibility issue” because the fossil
fuel industry has been slow to accept the reality of global warming.
“Yes, climate change is real. And yes, renewables are an
indispensable part of the future energy mix,” van Beurden said. He
also said that the oil industry should not only accept the existence
of climate change, it should also support a carbon pricing scheme.

“You cannot talk credibly about
lowering emissions globally if, for example, you are slow to
acknowledge climate change; if you undermine calls for an effective
carbon price; and if you always descend into the ‘jobs v
environment’ argument in the public debate.”

Shell is not only feeling pressure from
the outside, its own shareholders voted for a resolution in which
they call for the company to disclose the company’s climate change
risks.

Energy companies are getting nervous
and this is has forced them to make concessions. Case in point,
utility giant NRG recently announced its goal of 90 percent emissions
reductions by 2050. NRG’s chief executive, David Crane, is doing
everything he can to address the changing social climate. He knows
that the future looks bleak for companies like his. “I don’t
relish the idea that year after year we’re going to be graduating a
couple million kids from college,” Crane said, “with a
distaste or disdain for companies like mine.”

Now even those responsible for the
problem are being forced to acknowledge the facts. A recent BP
report acknowledged that the current emissions
trajectory is unsustainable and a carbon pricing scheme is required.

Countering misinformation

The fossil fuel industry’s subterfuge
is increasingly being exposed. In December, Shell’s chief climate
change advisor was slated to present a panel, cosponsored by Chevron,
entitled, “Why Divest from Fossil Fuels When a Future with
Low-Emission Fossil Energy Use Is Already a Reality?” However, due
to pressure, the discussion title was changed to “How Can We
Reconcile Climate Targets with Energy Demand Growth?” Despite the
name change, the event was greeted by protestors in front of the
private pavilion of the International Emissions Trading Association,
which was sponsored by Shell and Chevron.

While the fossil fuel industry would
like us to believe there is no future without hydrocarbons, there is
growing evidence that this is simply not the case. A March study
by venture capitalist firm DBL Investors squarely refutes the fossil fuel lobby’s contention that renewables will
drive up the price of electricity. DBL’s research indicates that
states that employ electric power produced by renewable energy have
lower electricity costs than those that do not.

A report titled, Photovoltaic
(PV) Pricing Trends: Historical, Recent, and Near-Term Projections,
indicates that solar energy is also becoming increasingly competitive
with fossil fuels. A report from the United Arab Emirates, the
epicenter of fossil fuels, heralds the ascendency of renewable
energy. The report from the Bank of Abu Dhabi titled, “Financing
the Future of Energy,” states that the
cost of solar PV has come down more than 80 percent since 2008. Wind
energy has declined by almost 60 percent in the last several years
and wind turbines are now 15 times more efficient than they were in
the 1990s. A DoE
study revealed that wind could be directly competitive with fossil
fuels by 2025 and provide more than one third of US energy demand by
2050.

Investors

Renewable energy investments are
gaining momentum and offering powerful rates of return that far
exceed those from the fossil fuel industry. The “Financing the
Future of Energy,” report indicates that in the last five years,
there has been around $260 billion a year invested in
renewable-energy technology, representing more than half of all
global energy investments. It further states that as investments in
fossil fuels decline, there will be a 39 percent increase in
renewable-energy investment between 2013 and 2018.

The fossil fuel industry is getting
panicky as it watches investors peel away from fossil fuels and move
towards renewable sources of energy. Investor and former Shell
economist Jeremy
Grantham, wrote a letter titled “The
Beginning of the End of the Fossil Fuel Revolution” in which he
said, “investors know that fossil fuels will be replaced by
renewable energy”.

The Independent Petroleum Association
of America is pushing back by publishing facetious, self serving
reports like, “Fossil Fuel Divestment: A Costly and Ineffective
Investment Strategy.” This report suggests that portfolios with
fossil fuel stock under perform. However a number of other studies
suggest that eliminating fossil fuel stocks has a negligible impact
on returns, and may even have a positive impact. This is the
conclusion of a number of reports including research from MSCI,
Advisor Partners, Impax, Aperio Group, S&P Capital IQ, BNEF and
an aptly named Northstar Asset Management report titled, “The Cost
of Fossil Fuel Divestment Has Been Greatly Exaggerated.”

While oil industry stocks may have
performed well over the last 50 years, they have under performed in
the last 5-10 years. There is every reason to believe that concerns
about carbon pricing, the removal
of subsidies, carbon
budgets, stranded
assets and carbon bubbles will continue to put
downward pressure on the ROI of fossil fuel investments.

Fossil fuel companies are nervous
because they are seeing the beginning of the end of dirty energy