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Henry Hewitt

Henry Hewitt

Henry Hewitt is an investment strategist and portfolio manager with 36 years of experience in renewable energy. He is also a seasoned writer having published…

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Fossil Fuel Divestment Could Be A Red Herring

Fossil Fuel Divestment Could Be A Red Herring

The endangered species list created by climate change includes not only fossil fuels, but also central power plants, shoreline infrastructure and – with drought becoming widespread – fresh water.

It would be nice to think that merely selling shares in fossil fuel companies would solve the world’s woes, but that is not the case. However, the proceeds will become an abundant source of funds for the sorts of things that will. Only by re-investing those assets in the New Energy complex – clean energy industries that will be profitable – will a core mission objective be achieved, that is, the near cessation of CO2 production by 2050 from all energy systems without causing a worldwide depression, which is what would happen if everyone sold their fossil fuel assets tomorrow.

Downshifting carbon output between now and the year 2050, going from 35 billion tons per year to nearly zero, assuming that it can be done, would mean an average of 17 billion tons for another 36 years, or put another way, a total of 612 billion tons of carbon to cut – a rather ambitious target. Even if achieved, nobody knows if that will hold the line against catastrophic sea level rise. Related: The Dark Side Of The Shale Bust

Though the divestment chorus is growing louder, not everyone will cooperate without a fight. InsideClimate News reported on the development in April 2015: “Last year, ExxonMobil agreed to produce a report on stranded asset risk in response to a shareholder resolution. In the report, the company dismissed the concern by noting that rising global demand for energy would protect its fossil fuel reserves from becoming stranded through 2040. The ExxonMobil report was criticized for ignoring several factors, including scenarios where increased energy demand could be substantially met by sources other than fossil fuels. The company hasn’t included that kind of analysis in SEC filings, though, and neither have other oil and natural gas companies.”

Renewable Power Takes the Lead - New Capacity Worldwide (GW)

Source: Bloomberg New Energy Finance Conference, NYC, April 2015

“Sources other than fossil fuels” refers to renewable energy. This January, Greentech Media reported that: “Solar Is Cheaper Than the Grid in 42 of the 50 Largest US Cities.” And in April, CleanTechnica reported that: “Wind is now the cheapest way to bring new electricity generation to the grid in the US as well as many other countries.”

The biggest obstacle to an orderly retreat from carbon on a global scale is the massive numbers of coal-fired power plants in China and India. Fortunately, the Chinese government is committed to taking drastic steps to solve their air quality problems, which are estimated to kill over a million people annually. In 2014, 90 percent of China’s cities failed to meet air quality standards. But the Chinese government has committed to reducing its emissions from coal, even going as far as shutting down the last big coal stations in Beijing. In addition, they will also be closing more than 2,000 small coal mines.

This is an extraordinary step for China since two-thirds of their power comes from coal; in the U.S. the figure is closer to one-third. On the bright side, China already leads the world in the production of renewable energy and it is in its interest to feed domestic renewable energy into the next 500 million cars produced. A recent report: China 2050 High Renewable Energy Penetration Scenario and Roadmap Study, lays out a plan for China “to drastically reduce reliance on coal, derive 85 percent of electricity from renewables, and cut greenhouse gas emissions 60 percent by mid-century.” Related: Is Elon Musk Just A Billionaire Welfare King?

                

Nevertheless, it will take decades to replace coal as a source of power. The CEO of Glencore, the world’s top exporter of coal used in power stations, expects efforts to curb climate change (by keeping fossil-fuel reserves in the ground) to fail. Shareholders won’t be “prevented from realizing the full value of Glencore’s fossil fuel assets,” Ivan Glasenberg has said. “Some of our stakeholders are concerned about the future of our fossil fuel reserves; in particular that they may become stranded assets. . . . We do not believe that the global energy reality will economically support carbon measures that would prevent us from fully utilizing our fossil fuel reserves.” But, Glasenberg may in fact have it backwards. The growing momentum around the world to address carbon emissions may lead to policies that may lead to a reality that does not economically support coal. Related: EIA Oil Production Numbers All Over The Place, Again

If you still wonder whether holding onto fossil fuel assets is a smart play, here is a summary of some of the rising risks: 1) Commodity Price risk: At best, oil and gas prices are volatile. In a ‘low carbon’ environment, the demand for these fuels should be expected to fall dramatically. 2) Demand/Volume risk: The cost of extracting reserves from places where it is hard to operate should not be underestimated. Will the capital be available to go and get them? 3) Management risk: Are managers (and shareholders) primed to operate in an environment characterized by low or no growth? Of course the biggest risk is that alternatives are cheaper, better and less risky, which is already true in many cases.

The technologies bringing infinite renewable supplies within reach of most consumers are already cost-effective and scalable, so renewables are going to win this fight; and CO2 levels will come down. How far and how fast are yet to be determined. And thereby hangs a tale. The question is, how many rooftop PV arrays in conjunction with how many EVs (another name for mobile storage units) will it take to quench the carbon fire?

Read Part 2 by clicking here, Part 3 by clicking here and Part 4 by clicking here, and the introduction to the serie by clicking here

By Henry Hewitt for Oilprice.com

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  • Roland on June 16 2015 said:
    The graphic "Renewable Power Takes the Lead" is IMHO very misleading. I don't believe the numbers. Perhaps it meant to say "Renewable Electric Power Takes the Lead." That, I would believe. Coal is dead. But petroleum is primarily a Transportation fuel, and IMHO will hold that title for a long time to come. Battery tech has come far, but it still has a long way to go for large-scale transportation. And why is that graphic so small, and lacking a label on the vertical axis?

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