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Coal

Published on November 20th, 2015 | by James Ayre

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Leading Economist: Divest From Fossil Fuels Now

November 20th, 2015 by  


Originally published on EV Obsession.

The famous French economist Thomas Piketty has issued a public call for investors to divest from fossil fuels ahead of the upcoming Paris climate change talks, according to recent reports.

Accompanied by the economist Tim Jackson, Piketty wrote an open letter arguing that divestment was a necessity as the fossil fuel industry’s business model is “at odds with physical realities.”

coal

For those who don’t know, the Paris climate change talks in question, the COP21 talks, are set to begin at the end of the month; and will see around 200 different countries from around the world negotiate a deal to limit greenhouse gas emissions for the post-2020 years. The aim is to try to avert catastrophic climate change.

The recent open letter, published in the Guardian, contained this: “This is a rare and decisive moment in history. Science, ethics, and economics, are intersecting to form a clear market signal: in the lead up to the COP21 climate talks, responsible investors should divest from fossil fuels.”

“Set against a backdrop of record-­breaking climatic extremes and weather events, capital continues to flow into the exploration and future extraction of dirty energy. Those investments are wagers on a future in which vast potentials of carbon reserves are available to be processed – a bet against the public’s well­being.”

Strong words. Though, if anything, ones that undersell just how dangerous the situation/issue really is.

“At a time when the fossil fuel industry should be shifting their businesses to focus on renewable energy they are doing the opposite, doubling down on coal, oil and gas … Meanwhile, clean, carbon-­free energy is rapidly becoming cost­-competitive with dirty energy. These recent political and market shifts are all being driven forward by a dramatic shift in the social zeitgeist. Climate change is now a primary social concern.”

Image: coal, via Shutterstock


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About the Author

James Ayre's background is predominantly in geopolitics and history, but he has an obsessive interest in pretty much everything. After an early life spent in the Imperial Free City of Dortmund, James followed the river Ruhr to Cofbuokheim, where he attended the University of Astnide. And where he also briefly considered entering the coal mining business. He currently writes for a living, on a broad variety of subjects, ranging from science, to politics, to military history, to renewable energy. You can follow his work on Google+.



  • Pat Campbell

    “at odds with physical realities.” – interesting statement by an economist who has little or no investment experience. My two best investments right now are community solar which pays me over a dollar per kWh and Kinder Morgan which pays a nice dividend as it transmits natural gas from one place to another at an increasing profit as the switch from coal to renewables via the NG bridge goes forth.

    • hhl

      what about the 50% drop in Kinder Morgan stock?

      • Pat Campbell

        No problem bought more. The folks who folded lost money

        • hhl

          What about now after the dividend cut? Got even more?

          • Pat Campbell

            No, I am holding at this point. I did buy another 300 shares. This is a 5-10 year investment as we move from coal to natural gas power generation and onto EV’s. In driving around in my Leaf, I can see we are still a long ways from vehicle electrification. Once people find out how fun and practical EVs are, I think they will take over the roads … but as many are buying new now and the price of gas is down, that will be awhile.

          • hhl

            I drive a Leaf too and have solar panels and own KMI and holding but no more of that for me. 5 years from now, gas might go the way of coal

          • Pat Campbell

            I’d give it a little more than that as so many have bought new ICE vehicles recently. I may be wrong as there seems to be a great market here for used Leafs.

  • Epicurus

    Can ExxonMobil shareholders sue the company for failing to heed its own research and develop new green businesses to maintain shareholder value?

  • NRG4All

    I now see TV commercials from the Petroleum Institute championing fossil fuels for security, strength, jobs, a chicken in every pot and world peace and reminding everyone to vote properly in the next election. [;o)

  • Larry

    I hope the fossil fools promoting fossil fuels go bankrupt sooner rather than later

  • JamesWimberley

    Well timed. ISIS has increased the already high probability of success in Paris: partly it’s the rather wonkish connection between the meltdown of Syria and drought exacerbated by AGW, more the underlining of the old fact that dependence on oil means becoming hostage to the perpetual conflicts in the Middle East. Renewable energy is secure domestic energy.

    Obama, Xi and other world leaders have not changed their plans to go: which means they are confident of success too, and want to be in the photo with Figueres. In a month’s time, fossil fuel companies will start realizing that they are under an official death sentence. The only remaining argument is how long they can stay on Death Row.

    • Martin

      Just remember if somebody or a business is on “death row” do you think they will go willingly or kicking and screaming?
      By the way in Edmonton, Alberta, Canada currently the gas prices fell in the less than two weeks by 13 c/l to as low as 83 c/l ( for the US take that x 3.8 (gal) and x .75 c for our $ to the US $.

      • bwollsch

        I vote for kicking and screaming. There are still far too many people (consumers), especially in coal, oil and gas states that don’t believe in global warming and believe it is their God given right to drive a Hummer or Excursion. They will complain about $4/gal (US) gas, but will do nothing help alleviate the problem. As Bob says, until EV prices come down and range goes up, many people will not switch to EVs. And even then, maybe not. After all, this is ‘merika.

      • Martin

        As for making extra profits, some towns had price drops (in Alberta and BC) of only 5 cents a liter while the town next door had the same 110 – 13 cents l drop.
        Guess it is all about greed or lack of competition.

    • Bob_Wallace

      Walking the Green Mile. How much can they drag their feet?

      Seems like it’s getting more and more out of their control….

  • Ross

    Who the heck would want their investments tied up in Fossil Fuels when it is an industry in long term decline with a risk of further precipitous declines in valuations like we’ve already seen in the coal industry.

    • Martin

      I went on the internet yesterday and came across an article predicting oil at $ 80 per barrel in a few years.
      I doubt that prediction, but how many will think it is correct?

      • Bob_Wallace

        A spike at $80? It’s possible. A crisis of some sort could drive oil that high or higher for a limited period.

        A rise to $60? More likely. Money is not being made at today’s prices, oil can’t stay this cheap for long. I think around $60 is where it becomes economically feasible for new wells to be developed. The existing lower cost suppliers may want to keep the price below that point so that they can sell as much as possible.

        • UncleB

          Recent Asian advances in Science and technology will scew all U.S. ‘numbers”. Beware: China , more patents than U.S.A. this year . . .

      • Ronald Brakels

        An oil price of $80 a barrel in 3 years time certainly does not seem an unlikely proposition. It’s enough time for tight oil wells to run dry and, generally speaking, they won’t have replacements waiting to take up the slack due to current oil prices making most new wells uneconomical. And so oil prices will rise. And since oil prices are determined by supply and demand at the time, it won’t matter if it is obvious to everyone and their blind dog that transportation will go electric, as long as there is more demand relative to supply then prices will rise.

        • Martin

          The same article stated if prices stayed low, say $ 40, that in less than 5 years a number countries would be bankrupt.
          But would the citizens of those counties go for that or change governments?

          • Bob_Wallace

            I’m having a hard time figuring out what is happening with oil prices. The only working hypothesis I’ve got is that the Mideast producers are attempting to build a new Super-OPEC.

            They’ve decided to starve out other suppliers until they get enough cooperation to allow them to determine who gets to sell what amount and that way force higher prices overall.

            I can see them getting their act together about the time EVs reach/approach purchase price parity. Oil prices go up. Manufacturers won’t be able to keep up with demands for EVs.

          • The other working hypothesis I have is demand destruction through more efficient cars (hybrids) and EV’s. In many Western countries oil use in ground transport is already in terminal decline.

            “I can see them getting their act together about the time EVs reach/approach purchase price parity. Oil prices go up.”

            Oil prices will have to go down, not up. If they want to stay competitive. They simply can’t win: lower oil prices and they lose their profit, raise oil prices and they lose their clients.

            It’s game over for oil.

          • Bob_Wallace

            It’s not a matter of staying competitive. Oil can’t stay competitive. It isn’t now. Oil (for personal transportation) is being saved by battery prices.

            The trick will be to extract as much cash as possible on the way out and, if they are smart, to invest that cash in ways that will help replace some of the lost oil revenue.

            What I think the oil producers have to do fairly soon is to ramp up selling prices while 98+% of driving is done with oil. That should speed the emergence of <$25k long range EVs some, but they could stash away a lot of money before demand dropped appreciably.

          • eveee

            Yes. This is a real possibility. There are always multiple source with multiple prices on a bell shaped curve or similar. As demand drops, only the cheapest remain. So oil prices could remain low if demand dries up and transportation alternatives start to appear.

          • eveee

            You are not alone in guessing oil prices. I guess historically we know Saudi Arabia and OPEC can drastically affect prices. That effect is somewhat muted, but continues, as unconventional oil eats into their market share and control. It doesn’t help prediction when a king and his family determine oil prices. Any technical economics based prediction is bound to fail there. A psychologist familiar with the family might do better. On the other hand, many predict that the Hubbert Curve downslope will be volatile.
            Here is a reference showing the dual curves of conventional and unconventional oil, accounting for recent events. Fig. 12
            http://dieoff.org/page191.htm
            Here is a discussion on volatility.
            http://ideas.wikia.com/wiki/Volatility_in_the_Price_of_Oil_since_Hubbert's_Peak_and_Investment_Risk

          • Bob_Wallace

            It’s time to toss the Hubbert Curve. It doesn’t allow for substitutions.
            Were we to start running short of oil there would be a quick move to PHEVs and EVs. More electrified rail would be built. Demand could be quickly dropped so that we could avoid >$100/barrel oil. And we were OK when oil was at $100 earlier.

            We have years and years of oil from the Bakken and Canadian sludge that can be marketed for under $100.

          • eveee

            Yes, The EV revolution will be different. Hubbert refers to a particular set of circumstances for commodity resource depletion. It also assumes capitalistic exponential demand growth and decay. IMO, those and the oil downslope cause instability.
            The curves model fuel resource substitution well. EVs powered by renewables will break the mold.
            By definition, renewables are not compatible with unlimited growth.

          • Steven F

            There are a lot of theories on why the oil price dropped assume demand is fixed unless there is a major rescission. .None of them seam to understand that demand is not fixed.

            If the 70’s when oil prices surged people drove less, carpooled, and purchased more efficient vehicles. Also utilities around the world were using oil to make power. Many of those oil plants were shut down or converted to gas in north America and Europe. End result was that oil demand dropped and It took about a decade for oil consumption to recover (mainly due to population increase).

            Since then we have made wind, solar, and EVs commercial. When the oil price spiked in 2008 people had to cut back and many went bankrupt. Many used mass transit and drove less with the assumption that is was a short term problem however by 2013 it was increasingly obvious that the price wasn’t dropping. So people started to make long term changes (more efficient vehicles, EVs, moving closer to work, installing solar). Many pacific islands and remote communities in Alaska and Canada started to look for ways to reduce diesel use. fortunately with wind and solar are easy to integrate into a diesel grid.
            End result is that it is the 70s all over again. oil consumption is dropping and may not recover for some time (if ever). In my mind oil prices cannot or are unlikely to increase while EV sales are increasing exponentially with continued drops in diesel consumption by remote grids.

          • Bob_Wallace

            If the lower cost suppliers are losing money at today’s prices then the price will rise. Current demand may not support new projects that take $80/barrel or more to bring on board. But there probably isn’t an adequate supply at $40 to meet demand.

            I’m not sure how up to date this graph is but at the point in time it was produced there wasn’t a huge amount of <$55 oil. Figure that the price would need to be something higher for those producers to make a profit and it suggests that the 'natural' price of oil is more like $60.

          • Bob_Wallace

            Oops…

            Forgot to link the graph.

          • eveee

            I have seen recent sources that quote the cost of production for oil sands at $47/barrel. Not clear if that means its marginal cost, so their already spent capital costs many not be included. They are not building any new facilities right now. They seem to be losing money.

            http://ca.reuters.com/article/businessNews/idCAKCN0QO25I20150819

            Although some sources have claimed shale oil can go as low as $27/barrel, there is considerable skepticism about those low numbers and its more widely estimated at about $50/barrel.

            Seems like its a matter of half the producers above that number and half below. A reasonable market would cut out the producers above that mark and lower production. But production is still humming along. Bloomberg has something on why that is.

            http://www.bloombergview.com/articles/2015-08-24/why-oil-producing-countries-keep-on-pumping

            Many companies are defaulting and lending money has dried up.

            http://www.ft.com/cms/s/0/5974a3ce-52e0-11e5-b029-b9d50a74fd14.html

            Oil exporting countries need to pay national debts and oil is what does that. So they can’t sell at the marginal production price. Here is a graph of what prices they can tolerate for their debts.

            http://si.wsj.net/public/resources/images/WO-AU057A_OPEC_9U_20141010180306.jpg

          • Ronald Brakels

            A number of countries will need to reorganise their finances if the price of oil does not go up. That doesn’t mean they will go bankrupt. Countries don’t really go bankrupt. They can get poorer though. And poor economic condtions can certainly contribute to people wanting to change their government, even though it may not be as easy to do as it is here.

      • UncleB

        Against renewable electricity at what price? Is this the missing link in the argument?

  • Martin

    Not any different than a lot of investment (and growing) by smart investors into the RE and related markets.

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