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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Clean Energy Or Fossil Fuels? Wall Street Is Betting On Both

  • Hundreds of billions of dollars continue flowing into fossil fuels every year, with no signs of the trend changing any time soon.
  • Many investors say that it’s next to impossible to fully forego fossil-fuel investments, because oil, gas and coal still account for about 80% of the world’s energy.
  • Dealogic: the ratio of green-to-fossil-fuel financing has stayed roughly similar.

The U.S. clean energy sector has been soaring so far in the aftermath of the Senate’s passage of a historic climate and energy bill that experts have hailed as the largest investment in fighting climate change ever made by the country. Dubbed the Inflation Reduction Act, the bill allocates $369 billion to renewable energy with the American Clean Power Association estimating it could more than triple clean energy production, cut emissions by 40% by 2030, and create 550,000 clean energy jobs. The Inflation Reduction Act will extend a number of tax credits already available for renewable energy and also create new incentives for investment in clean energy technology or energy generation. For the first time ever, would-be investors in clean energy have assurances in the form of a decade of subsidies from the federal government.  

But make no mistake about it: hundreds of billions of dollars continue flowing into fossil fuels every year, with no signs of the trend changing any time soon.

The latest climate report endorsed by 505 organizations from 51 countries around the world reveals that the world’s 60 largest banks have reached a staggering $4.6 trillion in the six years since the adoption of the Paris Agreement in 2015, with $742 billion going into fossil fuel financing in 2021 alone. The report says that even though net-zero commitments have been all the rage, the financial sector has continued its business-as-usual driving of climate chaos. Related: Barclays Slashes Oil Price Forecast To $103 Per Barrel

Dubbed Banking On Climate Chaos, the report says that overall, JPMorgan Chase, Citi, Wells Fargo, and Bank of America are the world’s leading fossil fuel financiers, together accounting for one quarter of all fossil fuel financing over the last six years. RBC is Canada’s worst banker of fossil fuels, with Barclays the worst in Europe and MUFG the leading financier in Japan. The report laments the fact that these banks continue to tout their commitments to helping their clients transition, and yet the 60 banks profiled in the report funneled $185.5 billion in 2021 into the 100 companies doing the most to expand the fossil fuel sector, such as Saudi Aramco and ExxonMobil (NYSE: XOM)--even when carbon budgets make clear that we cannot afford any new coal, gas, or oil supply or infrastructure. 

Here are some key highlights from the report, extracting only the data (without the politics):

  • Oil sands: Alarmingly, oil sands saw a 51% increase in financing from 2020–2021, to $23.3 billion, with the biggest jump coming from Canadian banks RBC and TD.
  • Arctic oil and gas: JPMorgan Chase, SMBC Group, and Intesa Sanpaolo were the top bankers of Arctic oil and gas last year. The sector saw $8.2 billion in funding in 2021, underscoring that policies restricting direct financing for projects don’t go far enough.
  • Offshore oil and gas: Big banks funneled $52.9 billion into offshore oil and gas last year, with U.S. banks Citi and JPMorgan Chase providing the most financing in 2021. BNP Paribas was the biggest banker of offshore oil and gas over the six year period since the Paris Agreement.
  • Fracked oil and gas: Fracking saw $62.1 billion in financing last year, dominated by North American banks with Wells Fargo at the top, funding producers like Diamondback Energy and pipeline companies like Kinder Morgan.
  • Liquefied natural gas (LNG): Morgan Stanley, RBC, and Goldman Sachs were 2021’s worst bankers of LNG, a sector that is looking to banks to help push through a slate of enormous infrastructure projects.
  • Coal mining: The Chinese lead the financing of coal mining, with China Everbright Bank and China CITIC Bank at the top of the list as of last year, and with big banks providing $17.4 billion to the sector last year overall.
  • Coal power: Despite the fact that coal is supposed to be targeted for phase-out, this segment has remained largely flat over the past three years in terms of financing, with some $44 billion in financing, again led by Chinese banks. 

All-In Energy Policy

Wall Street marches on in the energy sector, straddling oil and gas financing and the increasingly attractive clean energy prospects. According to Dealogic, the amount of money raised through bonds and loans for green projects and by oil-and-gas companies was nearly identical at about $570 billion in 2021. Fundraising may have slowed a bit, but that’s largely because of market volatility rather than dirty-vs-clean energy. Dealogic says that the ratio of green-to-fossil-fuel financing has stayed roughly similar.

Many investors say that it’s next to impossible to fully forego fossil-fuel investments, because oil, gas and coal still account for about 80% of the world’s energy. Energy and food shortages driven by the war in Ukraine have hammered home this reality while highlighting the risks of hasty or haphazard shifts away from fossil fuels in many European countries.

The IRA bill passed last Friday by the House of Representatives appears to take a similar tack, with principal backer Sen. Joe Manchin (D., W.Va.) and others dubbing it an “all-in energy policy."

The answer is not either-or, it’s all of the above," Megan Starr, global head of impact at private-equity firm Carlyle Group Inc., has told the Wall Street Journal. It’s true that some in the oil industry have taken issue with the Biden administration’s new regulations, such as higher taxes for methane leaks and other aspects of the IRA; however, plenty of others view it as a major opportunity for the energy section–and not just the clean segment.

By Alex Kimani for Oilprice.com

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