Monday, February 3, 2020

The End is Near for Dirty Energy: Fossil Fuels are Being Abandoned by Investors, Insurers and Banks

“I’m done with fossil fuels. They’re done. They’re just done. We’re starting to see divestment all over the world.” - CNBC’s Jim Cramer

The fact that investors, insurance companies and banks are abandoning the fossil fuel industry is a clear sign that coal, oil and gas are in the final stage of their energy dominance. Those who refuse to come to terms with this fundamental reality will by punished financially and in the court of public opinion.

Jim Cramer is a stock market pundit and he sees the writing on the wall. "I’m done with fossil fuels. They’re done. They’re just done. We’re starting to see divestment all over the world,"  Cramer said on CNBC.  He also said the industry is in the "death knell phase" comparing them to the tobacco industry before its collapse. "You’re seeing divestiture by a lot of different funds. It’s going to be a parade."

According to the Guardian, a report at the end of last year concluded that coal-fired power stations were, "on the way to becoming uninsurable". At least 35 insurers have begun pulling out of coal investments. The number of insurers withdrawing coverage for new fossil fuel projects has more than doubled over the last year.

Fossil fuels are not only imperiling life on the planet they are also bad investments. Despite one of the most bullish stock runs in decades, the share prices of many major oil companies are falling short of expectations.  Even if they were providing stellar returns it is hard for investors to justify supporting an industry that augurs death. 

"I think we’re at the point in the global warming story where anyone with an eye to history might want to ask, 'Do I really want to be trying to profit off the wreckage of the planet?'" said environmentalist and co-founder Bill McKibben. "Also, considering how badly the fossil fuel sector is underperforming the economy, politicians might want to ask themselves, 'Do I really want my constituents to think I’m this bad at managing my money?'"

According to a 2019 study published in Nature Energy, the energy return on investment (EROI) for fossil fuels is not what many believe. While a ratio of 25:1 is a commonly sited EROI for fossil fuels, this study suggests it is closer to 6:1 putting them in line with renewable energy. As the study's co-author told Bloomberg "The transition from fossil fuels to renewables actually might not be as bad as people thought," he said.

By 2016 it was becoming clear that divestment was a serious and growing movement. This became irrefutable when in 2017 the world's largest equity investor, Norges Bank Investment Management ("NBIM"), Norway's $1 trillion sovereign wealth fund, announced that it was selling its $35 billion stake in oil and natural gas stocks. As of 2020 most investors now accept that fossil fuels are terminal.

BlackRock, the world’s largest asset management firm, has recently announced that it is launching new investment products that screen fossil fuels. BlackRock CEO Larry Fink used his most recent annual letter to warn of a "significant reallocation of capital". With more than $7 trillion in assets under management, this represents a seismic shift in the investment world. Goldman Sachs announced it wouldn’t fund drilling in the Arctic National Wildlife Refuge and they have signaled that they intend to decrease their financing of of new coal-fired power projects and diversify away from the fossil fuels.

Riksbank, Sweden's central bank has sold off bonds from parts of Canada and Australia due to concerns about fossil fuels. Reuters reported that Riksbank Deputy Governor Martin Floden said the bank would no longer invest in assets from issuers with a large climate footprint, even if the yields were high. "As a result of the new investment policy, we sold our holdings of bonds issued by Alberta in the spring. For the same reason, we have recently sold our holdings in bonds issued by the Australian states of Queensland and Western Australia," Floden said.

It looks as though 2020 will be they year that the shift away from fossil fuels goes mainstream. The European Investment Bank (EIB), the EU’s lending arm said as of the beginning of this year they will no longer finance fossil fuel projects. In 2017 The World Bank pledged to stop funding oil and gas projects beyond 2019. As reported by Reuters Matthew Green, a total of 130 banks worth $47 trillion are moving away from fossil fuels. This includes Deutsche Bank, Citigroup, and Barclays, all of which have adopted UN backed climate policies that would shift them away from fossil fuels to align them with the 2015 Paris Agreement. Other banks to join the "Principles for Responsible Banking" initiative included Danske Bank, ABN Amro, BNP Paribas, Commerzbank, Lloyds Banking Group and Societe Generale, according to a statement.

The fossil fuel industry is indeed dying, but unless they end quickly they may still take us all with them.

Ending Fossil Fuels is Necessary but it Won't be Easy
The Fossil Fuel Industry is Dying
Corruption in Washington: The Money Trail Leads to the Fossil Fuel Industry Republicans are the Leading Purveyors of the Fossil Fuel Industry's Climate Denial
Climate Action Must Include Efforts to End Fossil Fuels
Tackling Climate Change by Riding the Fossil Fuel Industry into the Ground
Market Forces are Killing the Fossil Fuel Industry
Oil is a Bad Investment
Curbing Fossil Fuels
The Risks Associated with Stranded Fossil Fuel Assets
The Fossil Fuel Industry has Reason to be Nervous
Fossil Fuel Divestment and Stranded Assets
Infographic - Stranded Fossil Fuel Assets

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