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 350.org 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.

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Ten Climate Proposals from the Leading Democratic Presidential Candidates

For the first time ever, all of the leading Democratic presidential candidates agree that climate change is a high priority issue that demands urgent action. They all released climate proposals ahead of the historic climate town halls on September 4th.

There is a great deal of agreement between the leading Democratic contenders. They all want to reverse Trump's actions and rejoin the Paris Climate Agreement. They all support zero-emissions, carbon-neutral electricity, the electrification of transportation and ending federal fossil fuel subsidies.

The candidates also share a common focus on socioeconomic disparities. They want to address inequality through climate action that assists vulnerable people in minority and other disadvantaged communities. They all offer varying degrees of support for the Green New Deal.

However, they differ on timelines and how they will pay for their plans. Some favor fining polluters, others prefer a carbon tax. Many want to end tax breaks to the fossil fuel industry and/or increase taxation on the wealthy.

Candidates are jockeying for the role of pack leading climate hawk. The position was vacated when former Washington governor Jay Inslee dropped out of the race last month. Both Warren and Castro have met with Inslee or his people, however, their climate proposals still fall short of Sanders's plan.

Bernie Sanders

• $16.3 trillion investment
• Carbon neutrality by 2030

Sanders makes it clear that he wants to lead the world to address the climate crisis. He wants to see 16.3 trillion in federal spending in a World War II style mobilization that would touch almost every sector of the economy. In addition to the size of the federal investment, Sander's proposal is unique in terms of time-frames. He wants the U.S. to be carbon neutral by 2030. He wants to transition away from fossil fuels and immediately ban energy extraction. Sander's plan includes 100 percent renewable energy which Sander's claims will produce 20 million jobs. He also wants to use the courts to level criminal charges against companies who conceal knowledge of harm caused by their products or services.

Elizabeth Warren

• $2 trillion investment
• Carbon neutrality by 2035

Warren has largely adopted Inslee's plan with some tweaks and additions. Warren has proposed a $2 trillion investment in green manufacturing, research and development. She wants to take the innovations produced through this investment and market them abroad. She recently added another $1 trillion to achieve zero-carbon emissions and the timelines breakdown as follows: New buildings by 2028, vehicles including trucks and buses by 2030 and electricity by 2035.

Kamala Harris

• $10 trillion investment (public and private)
• Carbon neutrality by 2045

Harris wants to invest $10 trillion in private and public money to make the U.S. economy carbon-neutral by 2045. Her plan dovetails with the Climate Equity Act put forward by her and Rep. Axexandria Ocasio-Cortez. Harris also wants to increase penalties for companies that violate federal pollution laws and she wants to restore the polluter pays model to fund the superfund program.

Cory Booker

• $10 trillion investment
• Carbon neutrality by 2045

Like Harris, Booker wants to invest $10 trillion to achieve carbon neutrality by 2045. He wants to pay Americans a climate dividend with money raised through carbon fees levied against fossil fuel producers.

Julian Castro

• $10 trillion investment

Although the details are not clear, Castro also wants to see $10 trillion in spending. His plan emphasizes addressing economic inequality with civil rights legislation that will tackle environmental discrimination and environmental racism.

Beto O'Rourke

• $5 trillion investment 
• Carbon neutrality by 2050

O'Rourke wants to leverage a $5 trillion investment to get to zero emissions by 2050. He envisions a $1.5 trillion investment to reform energy and transportation infrastructure. O'Rourke is unique in wanting to work through Congress to set legally enforceable environmental standards including greenhouse gas emissions.

Joe Biden

• $1.7 trillion investment
• Carbon neutrality by 2050

Biden's plan adds to the work done by the Obama's administration while he was vice president. He would dedicate $1.7 trillion to eliminate GHG emissions by the middle of the century. He would end fossil fuels subsidies and ban new oil and gas permits on public lands. Biden embraces climate science and is calling for a timely clean energy revolution.

Pete Buttigieg

• $1.5 and 2 trillion investment (to leverage tens of trillions)

Buttigieg envisions spending between $1.5 and 2 trillion to leverage tens of trillions of dollars in private, state and local investment to combat climate change. He wants to invest another $25 billion in climate research and create a Climate Watch Floor in the Department of Defense. Buttigieg wants to make $1 trillion available to the economically disadvantaged.

Amy Klobuchar

• Carbon neutrality by 2050

Klobuchar wants to see zero-emissions by 2050. She also wants to bring back the Obama era clean power plan and gas mileage standards killed by Trump. She wants to work with Congress and take aggressive executive action.

Andrew Yang

Yang wants to massively invest in technology including decarbonization research. He sees sea level rise as inevitable and as a consequence he is focused on climate adaptation. He wants to move people away from low lying flood prone areas.

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Ending Fossil Fuel Subsidies is a Crucial First Step

Ending fossil fuel subsidies is the first step towards addressing climate change. We know that the climate crisis is a genuine emergency and we also know that fossil fuels are the leading cause, hence transitioning away from them is central to addressing the crisis we face.

"The first step towards that is to stop supporting the industry with our public dollars," Stephen Kretzmann, the executive director of Oil Change International is quoted as saying in a Center for Biological Diversity press release. "These subsidies are a raw deal for American taxpayers, and a disaster for our climate."

Fossil fuel subsidies are antithetical to carbon reduction efforts by governments, businesses, cities and communities worldwide. They are harmful to the environment and economic development. As Jake Schmidt, of the Natural Resources Defense Council, wrote in a blog: "Given tight budget times and the need to address global warming, subsidizing activities that are heating the planet just doesn't make sense. The only beneficiaries of fossil fuel subsidies are oil, gas and coal companies that are raking in record profits at the expense of the rest of us."

As explained on the Price of Oil website, a fossil fuel subsidy is any government action that lowers the cost of fossil fuel energy production, raises the price received by energy producers or lowers the price paid by energy consumers. There are a lot of activities under this simple definition—tax breaks and giveaways, but also loans at favorable rates, price controls, purchase requirements and a whole lot of other things.

Fossil fuel subsidies have been around since 1926, despite the fact that it is the most profitable industries in the world. As explained by Denmark’s Minister of Trade and Development Cooperation, Mogens Jensen, "Fossil-fuel subsidy reform are a key climate change mitigation policy with clear economic, social and environmental benefits."

Globally, the combination of production and consumption subsidies for the fossil fuel industry amount to more $600 billion annually.

According to the OECD production subsidies are estimated to be between $45 billion and $75 billion (budgetary support and tax expenditures) by the 24 richest OECD countries. Fossil fuel subsidies distort energy markets and each OECD country averages between $160-200bn each year. According to the International Energy Agency (IEA), consumption subsidies in 37 developing countries were worth $557bn annually.

According to a 2015 IMF publication when we factor the cost of damage from pollution and climate change, fossil fuel companies are getting $5.3tn a year in subsidies. To put this number into context that is equivalent to $10m a minute every day, that is more than the total health spending of all the world’s governments. Let that sink in, we spend more on energy that is killing people and the planet than we do on helping people to be well.

As reported by BBC News phasing out fossil fuel subsidies could reduce carbon emissions by 10 percent by 2030. In combination with the right carbon pricing scheme a 40 percent reduction in emissions is possible in some countries.

In 2015 a coalition of eight national governments (Costa Rica, Denmark, Ethiopia, Finland, New Zealand, Norway, Sweden and Switzerland), with the support of the International Institute for Sustainable Development (IISD), called for the "phase-out of subsidies to fossil fuels in the lead-up" to COP21. :

"The International Energy Agency (IEA) highlights fossil-fuel subsidy reform as a key component of a set of energy measures to combat climate change and estimates that even a partial phase-out of fossil-fuel subsidies would generate 12 percent of the total abatement needed by 2020 to keep the door open to the 2°C target. Accelerating the reform of fossil-fuel subsidies is therefore an urgent priority," the coalition known as "the Friends of Fossil Fuel Subsidy Reform" wrote In a communiqué. "The International Monetary Fund views that fossil fuel prices should reflect not only supply costs but also environmental impacts like climate change and the health costs of local air pollution. The majority of fossil-fuel subsidies are also socially regressive, with benefits disproportionately skewed toward middle- and upper-middle income households..."[removing subsidies would also] free up financing for sustainable development and support both national and international environmental priorities. At the same time, accelerated subsidy reform needs to be undertaken alongside measures that protect the poor and vulnerable groups from the impact of higher energy prices."

France has joined in calling on governments to eliminate fossil fuel subsidies. Despite a G7 pledge to end subsidies by 2025 and a 2013 commitment from the US and China to eliminate and consolidate fossil fuel subsidies we are not seeing much action on this front.

According to the IEA, the estimated value of global fossil-fuel consumption subsidies decreased by 15 percent to $260 billion in 2016, the lowest level in a decade. However, we are not seeing major reductions and in countries like the US and Canada these subsidies are actually increasing.

Related
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Curbing Fossil Fuels - Carbon Pricing and an End to Subsidies (WEF Summaries)
Infographic - Climate Finance vs Fossil Fuel Subsidies: National Comparisons
Infographic - Fossil Fuel Subsidies and the US Congress
Problems and Solutions to the Climate Crisis from the World Economic Forum in Davos
A Large and Growing Chorus is Calling for an End to Fossil Fuel Subsidies
Scientists Urge Government Action on Climate Including Removing Oil Subsidies

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