#Sludge Report — Who Is Funding The Fossil Fuel Industry?

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A new analysis by The Guardian shows that big banks, led by JPMorgan Chase, have invested more than $700 billion in new coal, oil, and natural gas projects since the Paris climate accords were agreed to in 2015. Under the “leadership” of CEO Jamie Dimon, JPMorgan Chase has been the largest funding source for massive global pollution. It has financed $75 billion worth of the dirtiest fossil fuel extraction projects, including fracking in the US and exploration operations in the Arctic.

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Other top financiers of fossil fuel companies include Citigroup, Bank of America, and Wells Fargo. In all, 33 financial institutions provided approximately $1.9 trillion in funding to the fossil fuel sector between 2016 and 2018. The analysis was done for The Guardian by Rainforest Action Network, a US-based environmental organization using Bloomberg financial data and publicly available company disclosures.

The figures show Wells Fargo, JPMorgan Chase, and Bank of America ponied up about $80 billion to finance fracking operations in the Permian basin in Texas over the past three years.  The financing of the tar sands crude oil projects in Alberta, Canada, is dominated by Canadian banks, led by the Royal Bank of Canada and Toronto Dominion. The big four state-owned Chinese banks, which have no fossil fuel financing policies, have dominated services for coal mining and coal generating plants since 2016.

Asked to comment on the findings, JPMorgan Chase offered a typically mealy-mouthed, weasel-worded response, saying it recognizes the complexity of climate change and is actively engaging with all stakeholders on the issue. Isn’t that like saying we will continue to help rape and pillage the Earth until someone forces us to stop? The Guardian says several of the banks it contacted for comment said they are expanding quickly into renewable energy financing and have tightened lending policies on financing for Arctic oil and gas, coal, and tar sands fossil fuel projects.

Elsa Palanza, Barclays’ global head of sustainability and citizenship, said “We can all sit around pointing fingers at each other, but that doesn’t help solve what is a really complex and multifaceted problem. What can help solve the problem is, firstly, the voluntary mechanisms we are working on, like the Task Force on Climate-related Financial Disclosures, and then the new attention from regulators like the Prudential Regulation Authority.”

“The new requirements make people working in banks think about climate change as a double-sided coin, to look at the risks within our portfolio, but also thinking about the opportunity side in terms of financing renewable energy. That’s leveraging the best of what a bank would offer.”

European Investment Bank Gets The Jitters

Last July, the European Investment Bank, which is owned by all the member countries of the EU, issued a statement saying it would phase out investments in energy projects that are “reliant on fossil fuels — oil and gas production, infrastructure primarily dedicated to natural gas, power generation or heat-based on fossil fuels. These types of projects will not be presented for approval to the EIB Board beyond the end of 2020.”

This makes perfect sense. Why should the EU, which is ratcheting up vehicle emission standards and proposing to ban the sale of vehicles powered by internal combustion engines in the near future, invest in the very fuels that make all those noxious emissions possible? And yet, as the time grew near for the EIB board of directors to approve the new policy, concerns from several EU members — including Germany, Poland, and Hungary — delayed the vote.

Executives of the bank played down the delay, saying the plan is still on course and would probably be approved next month. “The new energy lending policy is a milestone on the EIB’s road to transform itself into the EU Climate Bank. I am pleased about the important progress made today and am confident of securing a final approval in November,” Andrew McDowell, vice-president responsible for energy, told The Guardian. But climate advocates fear the new policy will be delayed further and weakened.

“This delay is a direct result of Germany and the European commission pushing to add more fossil fuels back into the policy. This is the opposite of the leadership demanded by millions of climate strikers and activists around the world,” said Alex Doukas of Oil Change International. “We are in the middle of a climate emergency, so it shouldn’t be hard to say no to more public money for fossil fuels.”

Between 2013 and 2017, EIB provided almost $12 billion in loans to fossil fuel projects, most of which was for natural gas projects. But over the same period of time it provided almost $70 billion to finance renewable energy projects. Werner Hoyer, the president of EIB, has called for more urgency. “We believe that gas emissions are too high and cannot be maintained. We must move out of these fossil fuels. We are aware it takes a transition period. We are aware that it takes help for the regions that are dependent on coal and gas. But one should not hide behind these arguments in order to perpetuate the use of these types of materials.”

EU leaders plan to describe global heating as an “existential threat,” according to a leaked copy of a summit communique, The Guardian reports, but there are divisions over the speed of action. Poland and Hungary are among a handful of countries that oppose the setting of an EU-wide zero carbon target by 2050. Germany reportedly believes natural gas is necessary for energy security, at least on an interim basis as it moves away from coal and nuclear power.

Fossil Fuel Investments Will Implode Soon — Bank Of England

Mark Carney, governor of the Bank of England, told The Guardian this week that it is possible the transition needed to tackle the climate crisis could result in an abrupt financial collapse. He said the longer that action to reverse emissions is delayed, the more the risk of collapse will grow. He warns that $20 trillion in assets could be wiped out if the climate emergency is not addressed effectively. But Carney also said great fortunes could be made by those working to end greenhouse gas emissions.

Disclosure by companies of the risks to their business posed by climate change is the key to a smooth transition to a zero carbon world, as it will enable investors to back winners. “There will be industries, sectors and firms that do very well during this process because they will be part of the solution. But there will also be ones that lag behind and they will be punished,” Carney says.

In June, he warned, “Companies that don’t adapt will go bankrupt without question.” US coal companies have lost 90% of their value, but banks are also at risk. “Just like in any other major structural change, those banks overexposed to the sunset sectors will suffer accordingly.” This week, Carney told business leaders they have two years to agree to rules for reporting climate risks before global regulators devise their own and make them compulsory.

Carney claims the transition to net zero carbon emissions will result in changes to the value of every asset and increase the risk of shocks to the financial system. “Some [assets] will go up, many will go down. The question is whether the transition is smooth or is it something that is delayed and then happens very abruptly. That is an open question. The longer the adjustment is delayed in the real economy, the greater the risk that there is a sharp adjustment.”

In April, Carney said, “The stakes are undoubtedly high, but the commitment of all actors in the financial system to act will help avoid a climate-driven ‘Minsky moment’ — the term we use to refer to a sudden collapse in asset prices. I don’t normally quote bankers, but James Gorman, who is the CEO of Morgan Stanley, said the other day: ‘If we don’t have a planet, we’re not going to have a very good financial system.’ Ultimately, that is true.”

Unlike many in the fossil fuel and investment community, Carney sees the upside to a zero emissions economy. “There is a need for [action] to achieve net zero emissions but actually it comes at a time when there is a need for a big increase in investment globally to accelerate the pace of global growth, to help get global interest rates up, to get us out of this low growth, low interest rate trap we are in.”

Managing The Transition

No one questions that transitioning from an economy based on fossil fuels to one that relies on renewable energy will be difficult. Fossil fuels provide our food, our jobs, our medicines, our transportation, and most of our clothes. It took 150 years to get into the mess we are in and we don’t have 150 years to dig ourselves out of the hole we have created.

To the untrained mind not steeped in classical economics — or the voodoo economics of the Reagan era — the answer is simple. Fossil fuels create waste products. Those waste products are endangering the Earth’s ability to sustain life as we know it. Yet all those complex economic theories fail to assign a cost to those waste products. Today, it’s like the local septic system pumping service stops by your house and discharges the contents of its trucks onto your front lawn. Then they tell you to pay to clean up their mess. For this we hand out Nobel prizes in economics? Can you say “insanity,” boys and girls? Yeah, I knew you could.

Economics is not rocket science. If we assign a cost to those waste products, the bad behavior stops — immediately if not sooner. Call it a carbon fee. Call it a carbon tax. Call it a sustainability assessment. Call it a ham sandwich. Call it anything you like, but until it happens, the world is allowing some people to grow rich by destroying the very world we all depend on for our existence. If that isn’t the definition of insanity, it’s hard to imagine what is.

Forget the political labels, the finger pointing, the screaming, and the hyperventilating pronouncements about liberty, democracy, and freedom. All those shibboleths are just a smokescreen designed to delay addressing the climate crisis the way sober minded adults should. The fear most of us have is that when the collapse of the big banks and oil companies occurs, they will take us all down with them.

Modern economic theory talks a lot about level playing fields. But being exempt from paying for the damage inflicted by the pollutants created by business does not lead to a level playing field. It results in a grossly unfair advantage for some at the expense of the many. It’s a “Heads we win; tails you lose” form of madness. Making business responsible for the harm it causes is the only fair way to protect the Earth and all who live here from extinction in the very near future.