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Naidoo writes: "A mind-boggling sum of about $800 for each person on the planet is invested into fossil fuel companies through the global capital markets alone. ... The amount of money invested into the 200 biggest fossil fuel companies through financial markets is estimated at 5.5 trillion dollars. This should be an impressive amount of money for anyone reading this."

International executive director of Greenpeace Kumi Naidoo. (photo: AFP)
International executive director of Greenpeace Kumi Naidoo. (photo: AFP)

Don't Bet on Coal and Oil Growth

By Kumi Naidoo, Reader Supported News

25 January 14


mind-boggling sum of about $800 for each person on the planet is invested into fossil fuel companies through the global capital markets alone. That's roughly 10 percent of the total capital invested in listed companies. The amount of money invested into the 200 biggest fossil fuel companies through financial markets is estimated at 5.5 trillion dollars. This should be an impressive amount of money for anyone reading this.

By keeping their money in coal and oil companies, investors are betting a vast amount of wealth, including the pensions and savings of millions of people, on high future demand for dirty fuels. The investment has enabled fossil fuel companies to massively raise their spending on expanding extractable reserves, with oil and gas companies alone (state-owned ones included) spending the combined GDP of Netherlands and Belgium a year, in belief that there will be demand for ever more dirty fuel.

This assumption is being challenged by recent developments, which is good news for climate but bad news for anyone who thought investing in fossil fuel industries was a safe bet. Frantic growth in coal consumption seems to be coming to an end much sooner than predicted just a few years ago, with China's aggressive clean air policies, rapidly dropping coal consumption in the U.S. and upcoming closures of many coal plants in Europe. At the same time the oil industry is also facing slowing demand growth and the financial and share performance of oil majors is disappointing for shareholders.

Nevertheless, even faced with weakening demand prospects, outdated investment patterns are driving fossil fuel companies to waste trillions of dollars in developing reserves and infrastructure that will be stranded as the world moves beyond 20th century energy.

A good example is coal export developments. The large recent investment in coal export capacity in all key exporter countries was based on the assumption of unlimited growth of Chinese demand. When public outrage over air pollution reached a new level in 2012-2013, the Chinese leadership moved swiftly to mandate absolute reductions in coal consumption, and banned new coal-fired power plants in key economic regions. A growing chorus of financial analysts is now projecting a peak in Chinese coal demand in the near future, which seemed unimaginable just a couple of years ago. This new reality has already reduced market capitalization of export focused coal companies. Even in China itself, investment in coal-fired power plants has now outpaced demand growth, leading to drops in capacity utilization.

Another example of potentially stranded assets is found in Europe, where large utilities ignored the writing on the wall about EU moves to price carbon and boost renewable energy. Betting on old business models and the fossil-fuel generation, they built a massive 80 gigawatts of new fossil power generation capacity in the last 10 years, much of which is already generating losses and now risk becoming stranded assets.

Arctic oil drilling is possibly the ultimate example of fossil companies' unfounded confidence in high future demand. Any significant production and revenue is unlikely until 2030, and in the meanwhile Arctic drilling faces high and uncertain costs, extremely demanding and risky operations, as well as the prospect of heavy regulation and liabilities when (not if) the first major blowout happens in the region. No wonder the International Energy Agency is skeptical about Arctic oil, assuming hardly any production in the next 20 years. Regardless, Shell has already burnt $5 billion of shareholders' money on their Arctic gamble.

Those investing in coal and oil have perhaps felt secure seeing the global climate negotiations proceed at a disappointing pace. However, the initial carbon crunch is being delivered by increasingly market-driven renewable energy development, and by national level clean energy and energy efficiency policies -- such as renewable energy support schemes and emission regulation in Europe, or clean air policies in the U.S. and in China. Global coal demand, and possibly even oil demand, could peak even before a strong climate treaty is agreed.

Investors often underestimate their exposure to fossil fuels, particularly indirect exposure through e.g. passively managed pension funds and sovereign debt of strongly fossil fuel dependent states. Assessing exposure, requiring fossil energy companies to disclose and reduce carbon risks, and reducing investments in sunset energy technologies will lead to profitable investment in a world that moves to cleaner and smarter energy systems.

Improving competitiveness of renewable energy, growing opposition to destructive fossil fuel projects, concerns on water shortage and the imperative of cutting global CO2 emissions all point in the same direction: Governments, companies and investors should all be planning for a world with declining fossil fuel consumption -- not only because it's the right thing to do, but also because it makes economic sense. It is the direction the world will be moving to -- faster than many yet anticipate. your social media marketing partner


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-6 # 2014-01-26 01:19
Oh it will come with Obama Fracking and next President can'tavoid that flow on.

But with luck Texas, New Mexico will become Independent Nations by then and Alaska sold back to Russia? So who knows?
+6 # 2014-01-26 03:16
The world of corporatist investments has been living in increasing delusion since at least the Reagan presidency. Finally the dodo is about to hit the fan, and there'll be no way to avoid the fact retrograde investments will become unavoidably evident.

Ideally, investments involve risk, and stupidity can only be sustained to a certain point. That point is about to be reached. So investments may crumble into digital nothingness, so that the new can emerge. "Due to factors beyond control" your pension has evaporated along with the carbon-based industries.

The mistaken assumption that the authorities know what they're doing will become obvious after the economic base is irreparable.

Why do you think the natural gas industry is paying so much for advertising? Because they want us to stay hooked up to their pipelines, not to enjoy the independence of reduced dependency on the corporate grid.

I'm glad to see the handwriting on the wall has now become increasingly obvious!
+7 # ericlipps 2014-01-26 07:05
If Texas and New Mexico became independent nations, they'd be ruined in no time. Both are utterly dependent on federal money, though Texas likes to pretend otherwise (New Mexico doesn't even pretend).
+2 # rmk948 2014-01-26 12:09
I wouldn't count on China chucking coal in the near future.
0 # ChickenLittle 2014-01-29 06:38
This is the problem with most environmentalis ts (and I consider myself one btw, only more informed about peak oil)- they believe the hype when it is said that oil demand has peaked. Has this guy seen the price of oil lately? Why do you think demand has dropped in this country? It's because our economy is barely alive, and that is probably the case because of high oil prices in the first place. The only replacement for the pure power of oil to accomplish work are wind turbines, which require fossil fuel inputs to construct and which cannot be relied upon by the entire country because we don't yet have a smart grid (or enough electric cars on the road) to store the energy produced when the wind is blowing for when it isn't, and transport it to where the wind doesn't blow at all. The defense dept. made a report years ago which stated that it takes 20 years, I repeat 20 YEARS to effectively mitigate the peak in the global production of oil, and so far we've been chugging along like it's business as usual with only a scant amount of the nation's total energy use replaced by renewables. I would love to think we can just immediately transition to a cleaner world run on renewable energy, but what most environmentalis ts don't get is that it is simply not possible without UNPRECEDENTED wind and solar implementation NOW, and sadly it seems that political corruption is making that impossible within the required amount of time. Barring an unforseen change, this recession aint ending folks
0 # ChickenLittle 2014-01-29 06:46
Now you might say- but wait, we aren't in recession right now. Oh no? Guess what, we are, but they've got the smoke and mirrors in full effect. All this fed money to the banks as part of the ongoing QE program is just hiding the fact that our economy has been belly up since 2008. Just you watch what happens when they finally try to stop the flow- the Dow will return to the same nose-dive track it was on before they started with all of this bailout nonsense. Since we do not yet have the installed wind and solar and hydro (and unfortunately, even nuclear, though the waste is a huge problem), plus a smart grid, plus electric cars (not currently affordable to most people), plus more importantly trucks and ships (the electric versions of which aren't capable of transporting the amount of freight we must move today) we are nowhere near replacing all of the fossil fuel energy our economy requires to prosper. The "recovery" is all just a lie, designed to allow the elite to get all of their ducks in a row before the resource wars over the planet's remaining oil reserves start in earnest (let's just hope to God they don't include nukes). It's probably all for the better anyway, this planet was never meant to carry more than 2 billion people, only problem is that the rich d-bags who had the resources to prepare will be the only ones left (barring a violent revolt, which they may already be prepared for), and that most of us in the lower and middle classes won't be making it out alive.

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