Goldman Sachs analyst Michele Della Vigna and her colleagues have issued a research note for investors that claims investments in renewable energy are set to overtake those in oil and gas for the first time next year. They think the clean energy field, including biofuels, will be a $16 trillion investment opportunity between now and 2030, according to a report by Bloomberg. The research note says renewables will represent about 25% of all energy spending in 2021 — up from 15% in 2014.
Goldman Sachs is all about making money. Social justice and saving the planet so people can continue to live on this Earth are all just window dressing — nice to have, but hardly necessary in the view of gimlet-eyed Wall Street traders. So what is driving this expansion in renewable energy? Financial considerations, of course.
The Cost Of Borrowing
Companies borrowing to finance new oil and gas exploration are paying up to 20% interest on those loans, while renewable energy developers are paying a mere 3%. That is a powerful economic incentive and paints a pretty clear picture of what the investment community thinks about the long term prospects for oil and gas.
The research note says clean energy could drive $1 to $2 trillion a year in infrastructure investment between now and 2030 and create 15 to 20 million jobs globally. “Renewable power will become the largest area of spending in the energy industry in 2021, on our estimates, surpassing upstream oil and gas for the first time in history,” the note says. What’s more, the high cost of capital for fossil fuel development is leading to an under-investment situation which could lead to higher oil and gas prices. Those higher prices, if they occur, will drive the clean energy transition even faster.
Virtual Carbon Pricing
Goldman claims the difference in borrowing costs for renewable energy versus oil and gas development is equivalent to a carbon emissions fee of between $40 and $80 per ton. In the real world, however, only about 16% of global emissions are priced and the average value is about $3 a ton. So while conservatives scream about how unfair carbon pricing is, it turns out it is already happening anyway.
The difference is that, unlike the dividends for ordinary people included in most carbon fee plans, the de facto system that has grown up in the investment community allows the wealthy to pocket all the profits derived from those high interest rates. Social justice gets short shrift in the world of high finance.
Carbon Capture & Hydrogen Left Out
An unfortunate side effect of this ad hoc financial system is that promising decarbonization strategies such as carbon capture and clean hydrogen will be shut out of the low interest rate financing that wind and solar are able to access, delaying progress in those important fields. Wind and solar are now seen as mature industries with proven financials, but carbon capture and clean hydrogen will have to scratch and claw their way toward respectability with investors.
A carbon pricing system would incentivize all zero and low carbon technologies equally for the greater good of society. “A two-speed de-carbonisation process may therefore accelerate de-carbonisation in the short term, but ultimately delay the long-term path towards net zero,” Goldman said in its research note.