Investing In Renewables, Divesting From Fossil Fuels

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Originally published on Climate Progress.
By Joe Romm

Bloomberg New Energy Finance has a must-read piece for investors on how the smart money is beginning to notice the quicksand on which fossil fuel stock prices are built.

clean energy investment

We reported back in April that BNEF said 70 percent of new power generation capacity added between 2012 and 2030 will be from renewable technologies (including large hydro).

Indeed, BNEF founder Michael Liebreich posed a good news, bad news story back then:

“By 2030, the growth in fossil fuel use will almost have stopped,” Liebreich told renewable-energy investors…. “We’re told that it needs to happen by 2020” in order to prevent irreversible climate damage. “That won’t happen. But by 2030, it pretty much will.”

Yes, homo “sapiens” will miss by just 10 years or so the window to avert catastrophic climate change — resulting in possibly hundreds of years of misery for billions and billions of people. The tragic irony is the fossil fuel industry is essentially doomed no matter what — but humanity wouldn’t be, if we were just a tad more “sapiens.”

We reported in August that a Goldman Sachs research paper concluded the “window for profitable investment in coal mining is closing” — same for for coal exports.

Now BNEF points out that much the same is true for oil investments:

Last month 70 investors representing $3 trillion of assets under management sent letters to oil-and-gas companies asking them to disclose plans for adapting to a world that may be edging closer to peak fossil fuels. That’s the point when humans stop increasing their annual burn – either because the environmental danger makes it too costly or because buildings and cars run more efficiently. BNEF says peak demand could happen in 2030.

The risk: Oil and coal companies worth more than $7 trillion may be sinking billions of dollars today into projects that will never make sense to finish.

A key point of this article is that it isn’t just enviros saying the days of fossil fuel are numbered. We have institutional investors, Goldman Sachs, Bloomberg New Energy Finance and many, many others in the financial industry:

In 2013, so-called carbon-asset risk “went from a conceptual possibility to a sort of near-and-present reality,” Nick Robins, head of the Climate Change Center at HSBC Holdings Plc in London, said in a phone interview. He wrote a research note in January valuing the risk of “unburnable reserves”: the oil and coal on companies’ balance sheets that will be too expensive to extract. “There is this undertow of demand destruction going on through technological improvement. That’s certainly not fully priced at the moment.”

And that’s without even considering the possibility of the world coming to its senses on the threat posed by unrestricted carbon pollution in time to avert the worst.

There’s more:

“The end is nigh” for global oil-demand growth, proclaimed a Citigroup report in March. Standard & Poor’s cautioned that a patchwork of policies that cut demand for fuels could lead to outlook revisions and downgrades in smaller oil-and-gas companies as early as next year, with a similar shock to the majors in 2016. Goldman Sachs’s advice to oil companies: “invest only in medium-/high-return projects, spend the rest of their cash on buybacks and focus on per share growth.” Translation: prepare to shrink the business.

Divesting from fossil fuels isn’t risky. Not divesting is.

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19 thoughts on “Investing In Renewables, Divesting From Fossil Fuels

  • The Giant Vampire Squid to oil companies: “invest only in medium-/high-return projects …” This may already be happening, Brazil’s last auction for deep offshore oil leases found no takers among the Seven Sisters. A Chinese oil company came in, but their actions are determined by politics more than economics.

  • This must only be investment in electric generation only. Net investment in fossil fuels -especially developing oil and gas production was something like $670B last year. We have a ways to go before renewables overtake fossil investments.

    They had one category I couldn’t place EfW. Does anyone know what this is?

    • Energy from Waste. Landfill, sewage, dairy, agricultural residues….

  • Since oil and gas production naturally declines by well, the industry is reasonably well suited for natural contraction by simply reducing capital expenditures to replace production than runs off.

    • One can only limit drilling/extraction costs so much. As cost savings measures are discovered and implemented it generally becomes harder to find further savings.

      And those savings are generally more than offset by the industry’s practice of grabbing the easiest to grab first. We’re having to go further, drill deeper, and refine crappier in order to keep pipelines full. That will only continue to worsen.

      Isn’t it the case that in order to keep the Canadian tar sludge industry in business the price of oil has to be around $100? Twenty years ago the oil industry would have laughed at the idea of cooking oil out of that crap. Now we view it as one of our best resources.

      • To be clear, my point is that oil and gas production would decline approx 10% per year if son new drilling took place. It’s a self liquidating business without new investment.

        Oil Sands is likely the highest cost production globally; it’s the best last idea that gets funded.

        Generally, commodities such as oil and gas lose value over time on an inflation adjusted basis. We were paying $3.50 for nat gas in 1984; same price as today. Even WTI at $95 hasn’t kept pace.

        • “Even WTI at $95 hasn’t kept pace.”

          What does that mean?

          • WTI was trading in the $30 range 30 years ago; it has lost value vs any other major investment class over that period of time.

          • WTI as in West Texas Intermediate? (This is a renewable energy site. If you go off into oil-speak you might want to define your terms.)

            Now, $30 range 30 years ago. Yes. But most would see your date choice as cherry-picking. You went for the oil embargo time price.

          • Embargoes were in 73-74 and 79 as your graph demonstrates. Saudis over supplying the market to break the Russians occurred in 86.

            Trust me. You would have rather invested in stocks or bonds rather than crude over in any recent period save for 2003-2008.

          • Trusting someone who selects a temporary peak price to make their oil price argument would be something like trusting someone who takes the 1998 El Nino atmospheric temperature peak to argue that the climate hasn’t warmed.

            That would be trust misplaced.

          • Run your graph through 2013 instead and it will be clear.

          • Here are spot prices through today.

            What’s still clear is that you made a statement based on cherry-picking the OPEC price spike.

  • Let’s take a minute to consider the graph above, which makes various surprising predictions. From the top,
    – Marine energy (tidal, deep ocean currents, heat exchange between shallow and deep water) should eventually grow into a visible slice what with all the research going on.
    – Solar investment should continue to increase geometrically for many years. Humanity can always find a use for more energy, particularly when you consider the amount of energy required to desalinate seawater and filter the excess greenhouse gases out of the atmosphere. Replacing the fossil energy sources we use now is just the beginning.
    – The wind figures will probably also be higher, as renewable energy will allow the world economy to start growing strongly again (economic growth having been constrained for the last decade to the rate of energy efficiency improvements).
    – The nuclear prediction is wishful thinking by the nuclear industry, although there will be ongoing expenditures to clean up existing facilities.
    – Oil, gas and coal should tail off fast after 2020 due to electric vehicles and direct competition from renewables.

    • I’m pretty much in agreement with what you’ve written except I don’t know any viable technology to remove CO2/GHG from the atmosphere.

      • Greening the deserts. Then cut the trees and transform them to charcoal. Throw the charcoal in the desert (it won’t oxidise without anything giving a inital start so the carbon will stay put for millions of years).
        How to green the desert? well that would need shitloads of energy. The question is: will we ever be fighting as if this where a war? the whole effort of entire nations supporting the fight?
        No? well then this won’t work. But apart from that the technology is really simple.

        • When I used the word “viable” I was specifically thinking about the shitloads of energy that would be needed to grow, harvest and turn plant material into biochar.

          Yes, it is a way to pull charcoal out of the air and stick it back into the ground, but it would take a massive, massive effort. The world burns about a billion tons of coal per year. About 30 billion barrels of oil. And we’ve been burning all this fossil fuels for decades and decades.

          • Turns out that this isn’t actually as crazy as I thought. Spent some time researching what humans can do and have done before.

            You would just need to create a few big lakes in arid regions.
            There are already a few quite large artificial lakes.

            Once you go into the region of around 50km3 of volume you have large enough lake to support groundwater wells for a city close by sustaining millions of Europeans (US Americans use to much water, at least according to Wikipedia, although actually that shouldn’t matter to much since the water isn’t lost). The Ecosystem of the lake would also be large enough to take all the used water after treatment. So you actually only need to fill up once. If you green the place it will get cooler and the rainfall will increase (since you also evaporate a lot more). Such a lake would also be large enough to cruise it with large tourist boats and stuff. If you populate it with fishes (which you should) it will create a proper fishing business. Tourism anyway, people like hot and sunny places, they just don’t like them to be completely dry.

            Digging a 45km3 hole (if you can’t use or modify a pre existing hole) is also surprisingly easy. The bucket excavators used to strip lignite in Germany will move 200 000m3 per day on average. They only cost 100M$ a piece and they are expected to serve 40-50years while the excavator wheels are expected to last 20. There will be some unemployed excavators around soon (hopefully). So digging the hole would take less then a year (212 days). I have sadly no idea of how much energy this will take all I know is that digging up the coal (which is done electrically) uses around 20% of what the power plant where the coal ends up produces so it will be in the 200-400MW range.

            Ok, filling that damn thing up. Wikipedia says that seawater desalination has a theoretical minimum of around 1kWh/m3, real life plants are between 3-5kWh (elecrical) for membrane technology (but creates nasty brine that can fuck up the place you pump it back into). Thermal technology needs 1.5-2.5kWh (electrical ) and 50-110kWh (thermal) leaving solid salt (press to blocks and use for building something). But this can be low value thermal since you are operating at lowered pressure so waste heat will do. So to fill this thing up at around the same rate you have dug it, you need worst case 1 GWh electrical per day and 22GWh thermal (actually less if you start with electricity from renewables and use heat pumps using the ocean as a sink).

            This of course exclude all sorts of problems but before I did this on a back of an envelope I thought it would be impossible. It isn’t. 45km3 of water is only 10% of the volume of oil transported in tankers or 1.6 times the volume of the concrete used in the three Georges damn.
            We can do this in a lot of places and this will cool the planet an make lots of places rather nice to live.

            Just needed to get this out of my head.

          • Although desalinating lots of seawater is necessary, transporting the resulting fresh water up to an inland reservoir is also energy intensive. I’ve proposed one method for doing this here:


            see the “reverse river pump” section.

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