Since the Paris Agreement bank loans for investments by the oil, gas, and coal companies have been steadily increasing; from $612 billion in 2016, $646 in 2017 and $654 billion in 2018. These investments through bank loans do not include the investments realized by internal company financing nor by external financing through bonds and stocks. The annual average of total capital expenditures by the fossil fuel industry was 1171 billion for the period from 2010 to 2017.
For what future are the fossil fuel companies planning?
One interpretation is found in the 2018 World Energy Outlook of the International Energy Agency that has ample energy company representation among its participants. Two scenarios are of particular interest: the New Policies Scenario that “aims to provide a sense of direction in which the most recent policy ambitions could take the energy sector” and the Sustainable Development Scenario that unlike the other scenarios, starts from the objectives to be achieved and then accesses what combination of actions that would deliver them. This scenario is fully aligned with the goals of the Paris Agreement. A third scenario, Current Policies, represents business-as-usual, illustrating the hazards that lie ahead for all aspects of energy security, and climate warming.
The most recent investments by the fossil fuels industry place it nearest to the New Policies Scenario, which takes into consideration many new policy changes on the part of various countries along with the difficulties in achieving them. This scenario paints a picture of "a concerted effort to move to cleaner and more efficient technologies, with the power sector in the vanguard of change, and a large and expanding role of natural gas with LNG underpinning the emergence of an increasingly competitive global gas market. But there remains a significant gap between the outcomes of the New Policies Scenario and those in the Sustainable Development Scenario." The differences in carbon dioxide emitted are significant: 35 versus 25 billion tons/year in 2030 and 36 versus 18 billion tons/year in 2040.
If sustainable development takes place, the current level of $ 1117 billion/year by the fossil fuel industry is more than that called for in that scenario, which requires lower annual investments of $830 billion (2018-2025) and $574 billion (2026-2040). The industry would have to cut back significantly; instead, massive investments are required in energy efficiency and renewables for sustainable development.
The fossil fuels industry is considering some changes that are taking place in the world but apparently is not convinced that the sustainable development scenario will take place, or as rapidly as called for by IPCC of October 2018. In other words, the significant change for the climate transition will have to come from the demand side. It is not realistic for the supply side to reduce capacity in hopes that the demand will diminish accordingly.
Recently in their meeting with the Pope, industry executives stated that they favored carbon taxes as a climate change mechanism. Carbon taxes are a demand-side policy, levied by governments, hopefully with revenue neutrality for lower income groups. Taxes are not popular, and even minor increases can cause strong reactions as evidenced by the "yellow jacket” revolt in France. Also, carbon taxes usually imply a reduction in subsidies to the fossil fuel industry. Introducing substantial carbon taxes is not simple.
However, the essential question is, what is the industry's vision of their selves? Are they “fossil fuel men” or can they be something greater? I have been fortunate to know various operators, CEO’s and wildcatters in the sector, and believe that their independent and pioneering spirit can go much farther. They have the capital, experience in managing large complex systems distributed over the territory, large R & D budgets, and management capabilities to take a much more proactive role in climate improvements. They could become part of the new supply side, in photovoltaics and wind, or participate in the new demand side of energy efficiency.
New investments necessary for energy savings in the sustainable development scenario total 16 trillion dollars, more than the 14 trillion dollars estimated for investments needed for the fossil fuel industry. Even in the New Policies Scenario investments for energy savings worldwide are given as 13 trillion dollars, a huge future market. Closer to the fossil fuels industry’s geologic upbringing, there is the impressive growth in markets for metals and minerals necessary for clean energy technologies such as lithium, cobalt, aluminum, copper, lead, manganese, nickel, silver, iron ore, zinc, and rare earth minerals. These are all areas of potential expansion, acquisition, and merger for a revitalized fossil fuels industry.
Moreover, it does not behoove the industry to try to sell the last drop of gasoline by delaying higher efficiency standards for cars and throwing the automobile industry into disarray with the prospects of selling to a divided national market, not to mention the negative health impact on millions of American living near major roads. This is old school thinking of short-term profits and is missing the big picture. It is not the best public relations for an industry that needs to evolve.
World economic development was not possible without inexpensive, widely available fossil fuels. We should be grateful for this. However, we now know that using them overheats the earth and is not sustainable. Our economics must embody the environmental changes that we produce because they consist of feedback loops that come back to impact on us.
We also know that such an evolution will not be instantaneous. We will need fossil fuels for our cars, trucks, buses, air transport, and chemical industries for decades to come, as illustrated even in the Sustainable Development Scenario. Moreover, most importantly, we require a proactive fossil fuels industry engaged in all aspects of sustainable energy development. When will the new energy leaders stand up?