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Climate Change was the Hot Topic at the World Economic Forum in Davos

January 28, 2019 Add Comment Edit

Climate change was the dominant theme at and this year's World Economic Forum (WEF). Panel discussions covered a wide range of related topics and including global warming, ocean sustainability and biodiversity. Al Gore, David Attenborough and Jane Goodall were among the participants.

This year's Global Risk Assessment report released at the WEF in Davos revealed, yet again, that climate change and related phenomenon are among the greatest risks both in terms of impact and likelihood. The report surveys nearly 1,000 decision-makers (public sector, private sector, academia and civil society) who are asked to assess the risks facing the world. Over a ten-year horizon, extreme weather and climate-change policy failures are seen as the gravest threats.

The WEF has issued many similar warnings in recent years. The 2016 Global Risks Report was the first that put environmental risks at the top the ranking. This report said the failure of climate change mitigation and adaptation is the risk with the greatest potential to impact society. It specifically warned about the impact of climate change on food security. As an interesting aside, the 2016 report included a prophetic warning about the risks associated with disempowered citizens.

The experts at Davos called for corporate and government action and there was widespread agreement that this requires economic change. As reported by CNN, these experts singled out fossil fuel subsidies in G7 countries. "There are still fossil fuel subsidies from G7 countries — that's ridiculous," said Rachel Kyte, special representative of the UN Secretary-General for Sustainable Energy. "Why we are subsidizing something we know is killing our children, poisoning them and affecting their ability to learn? That's beyond me," she added.

Attenborough, Gore and others have been sounding the alarm about climate change for years. However, the most powerful warning came from 16 year old Greta Thunberg who told attendees: "I don't want you to be hopeful, I want you to panic, I want you to feel the fear I feel every day," She also pulled no punches when she ascribed blame those assembled in Davos: "Some people say that the climate crisis is something that we will have created, but that is not true, because if everyone is guilty then no one is to blame. And someone is to blame," Thunberg said flatly. "Some people, some companies, some decision-makers in particular, have known exactly what priceless values they have been sacrificing to continue making unimaginable amounts of money. And I think many of you here today belong to that group of people."

After her speeches at COP24 and the WEF Greta has emerged as a leading voice for climate action. She is a realist in a world where many are either ebulliently optimistic about the prospects for climate action.

"Many people say that this is not an easy issue, we cannot just say that this is how it is, it's not black and white. But I say that this is black and white. Either we stop the emissions or we don't. There are no gray areas when it comes to survival,"Greta said.

In a chapter on the human causes and effects, the Global Risks Report 2019 calls for greater action around rising levels of psychological strain across the world.

"The world faced a growing number of complex and interconnected challenges in 2018. From climate change and slowing global growth to economic inequality, we will struggle if we do not work together in the face of these simultaneous challenges," the report's authors conclude.

Related
Climate Optimism and Sustainability Initiatives at the World Economic Forum in Davos
Climate Focus at The World Economic Forum in Davos
This Year's WEF Gives us Reason to Hope
Video - WEF 2015: A Climate for Action
WEF Summaries: Climate Change
Towards a Global Climate Agreement at COP21 (WEF Summaries)
Business Leadership on Climate Change (WEF Summaries)
Curbing Fossil Fuels - Carbon Pricing and an End to Subsidies (WEF Summaries)
The Value of Investing in Climate Mitigation (WEF Summaries)
Global Economies Feeling the Heat from Climate Change (WEF Summaries)
Collaboration and Cooperation are Imperitive (WEF Summaries)
What is The World Economic Forum (WEF)
Risks Associated with Environment, Climate, Water Crisis and Extreme Weather in the WEF Report

California's Cap-and-Trade Program is Alive and Well

July 18, 2017 Add Comment Edit

This is the eighth installment in a series of posts on California's climate leadership. These posts address a wide range of related topics including economic benefits and renewable energy.

With unprecedented bipartisan support, California lawmakers have voted to extend the state's cap-and-trade program. This carbon pricing program is key to meeting California's ambitious carbon reduction targets. The plan puts a statewide cap on greenhouse gas emissions and allows companies to buy and sell pollution credits.

The Golden State has been a cap-and-trade leader for years and it has a current market value of $8 billion. Negotiations are ongoing to include Mexico in the joint market. Two Canadian provinces are part of California's carbon pricing scheme. Quebec is already part of the deal and Ontario is linking with the market this year. B.C. already has a successful carbon pricing plan and even the oil producing province of Alberta has signed on to a carbon pricing initiative. The Regional Greenhouse Gas Initiative, (RGGI) is composed of nine north east states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont). The agreement caps and reduce CO2 emissions from fossil-fuel power plants that generate 25MW of power or more.

Using markets to combat pollution has proven effective. The argument for pricing carbon is compelling indeed some have argued that it may be the best way to reduce emissions. The president of the World Bank advocates putting a price on carbon and such pricing schemes are already widespread in countries around the world including Europe, China, Japan, South Korea, and Canada

California has passed a raft of increasingly stringent emissions reduction legislation. Although detractors have tried to suggest the state's cap-and-trade program is in serious trouble, the evidence shows that California's carbon trading scheme is a success story. As reported by Greenbiz, the most recent data (July 2017) indicates that California is only 3 percent away from its 2020 goal of reducing emissions to 1990 levels as required by AB 32. The article also makes the point that these reductions have been, "easier and cheaper than expected."

What is even more striking is that these emissions reductions have occurred alongside laudable economic growth. This is further evidence of the decoupling emissions and growth.

At the 13 previous California Air Resources Board’s (CARB) auctions, allowances have sold out at or above the floor price. However, at the last two auctions, demand was not strong enough for CARB to sell allowances at the price floor ($12.73 per ton).

This is because companies are not buying permits. Companies are not buying permits because they do not have to. As explained in the Greenbiz article, "they already held enough to account for their current emissions, or they expect to be able to make emission reduction for less than the cost of an additional permit."

Contrary to the assertion of detractors this does not prove that the scheme is failing, it may however suggest that California's climate and energy policies (ie performance standards) are working.

Despite some legal risks associated with court challenges the future of carbon trading looks bright in California. Gov. Brown has vowed to extend the program beyond 2020 and CARB has released a proposal extending the program to 2050. CARB’s new proposed regulation offers a stronger mechanism to correct for situations where supply exceeds demand. It does this by diverting unsold allowances to a reserve which provides downward pressure on allowances prices should cost pressures begin to emerge.

As reviewed in the Greenbiz article, "CARB’s cap-and-trade design has been fundamentally sound from the start, and only continues improving." For more information on California's cap-and-trade plan click here.

Related
US States Show Carbon Pricing Works
Low Oil Prices and Climate Action (carbon pricing and subsidies)
Why a Carbon Tax May be the Best Way to Reduce CO2 (Video)
Put a Price on Carbon
RGGI States' Third Consecutive Year of GHG Declines
Carbon Pricing and Emissions Trading a Global Review
US Cap-and-Trade: What and Why
US Cap-and-Trade: Positioning Your Business

The End of Fossil Fuel Subsidies

May 31, 2016 Add Comment Edit

Providing handouts to the wealthiest corporations on earth does not make much sense, particularly when their activities are the leading driver of climate change. Ending fossil fuel subsidies is the most obvious next step in our efforts to tackle the climate crisis. In the wake of the Paris Climate Agreement forged at COP21, continuing fossil fuel subsidies is an oxymoron.

These subsidies take many forms including, tax breaks, cheap loans, price controls, purchase requirements, purchasing equipment, royalty breaks and direct spending. According to some reports there are over 800 ways that taxpayers support the fossil fuel industry.

According to the IMF, global energy subsidies amount to 5.3 trillion dollars, or $10 million a minute. This translates to 6.5 percent of global GDP, in 2015 alone. This is more than the entire health spending of all the world’s governments. The IMF suggests that removing fossil fuel subsidies could reduce greenhouse gas emission by 20 percent. Everybody from Prince Charles to the IMF have called for an end to fossil fuel subsidies.

Nicholas Stern, climate economist at the London School of Economics, said: “There is no justification for these enormous subsidies for fossil fuels, which distort markets and damages economies, particularly in poorer countries.”

Christiana Figueres, the UN’s climate change chief commented: “The IMF provides five trillion reasons for acting on fossil fuel subsidies. Protecting the poor and the vulnerable is crucial to the phasing down of these subsidies, but the multiple economic, social and environmental benefits are long and legion.”

The president of the World Bank, Jim Yong Kim, succinctly stated: “We need to get rid of fossil fuel subsidies now.”

Shelagh Whitley, a subsidies expert at the Overseas Development Institute, said: “governments around the world are propping up a century-old energy model. Compounding the issue, our research shows that many of the energy subsidies highlighted by the IMF go toward finding new reserves of oil, gas and coal, which we know must be left in the ground if we are to avoid catastrophic, irreversible climate change.”

The world's biggest providers of fossil fuel subsidies are China, ($2.3tn) US ($700bn), Russia ($335bn), India ($277bn) and Japan ($157bn), and the European Union ($330bn).

By making fossil fuels cheaper, subsidies increase the use of dirty energy resulting in more emissions. A new report shows how subsidies are increasing our emissions. According to the report's author Radek Stefansk from The School of Public Policy at the University of Calgary:

“The resultant 170-country, 30-year database finds that the financial and the environmental costs of such subsidies are enormous- and steadily increasing. The overwhelming majority of the world’s fossil fuel subsidies stem from China, the US, and the ex-USSR; as of 2010, this figure was $712 billion or nearly 80% of the total world value of subsidies. For its part, Canada has been subsidizing rather than taxing fossil fuels since 1998. By 2010, Canadian subsidies sat at $13 billion, or 1.4% of GDP. In that same year, the total direct and indirect financial costs of all such subsidies amounted to $1.82 trillion, or 3.8% of global GDP.”

Perhaps the most noteworthy statistic contained in the report show that in the absence of subsidies emissions would have been cut in half in 2010.

IMF

Numerous other studies including IMF research have come to similar conclusion as the Policy School study. The IMF called these subsidies "unsustainable"." The IMF described these subsidies as "perverse" saying "they are using public funds to create a problem the world has agreed to fix in Paris. And they leave us all to pay the societal costs that fossil-fuel pollution causes."

Ending the subsidies would also reduce the number of premature deaths from air pollution by half translating to about 1.6 million lives a year.

In 2014, IMF leader Christine Lagarde said reducing subsidies for fossil fuels and pricing carbon pollution should be priorities for governments around the world.

“We are subsidizing the very behaviour that is destroying our planet, and on an enormous scale. Both direct subsidies and the loss of tax revenue from fossil fuels ate up almost $2 trillion in 2011—this is about the same as the total GDP of countries like Italy or Russia,” Lagarde said.

G7

In 2009 the G7 (composed of UK, US, Canada, France, Germany, Italy, Japan and the European Union) announced that it would end fossil fuel subsidies but no timelines were given. At a recent meeting of the G7 in Japan, the world's wealthiest economies have agreed to end fossil fuel subsidies in the next decade.

“Given the fact that energy production and use account for around two-thirds of global greenhouse gas emissions, we recognise the crucial role that the energy sector has to play in combating climate change,” said the leaders’ declaration, issued at the end their summit in Japan.

G20

In 2009, G20 countries promised to phase out "inefficient" fossil fuel subsidies. According to a report titled "Empty Promises: G20 subsidies to oil, gas and coal production," G20 countries are spending $452 billion US a year in direct subsidies to their respective fossil fuel industries. The study's co-author Alex Doukas, who is senior campaigner with Oil Change International, said,

"We're subsidizing companies to search for new fossil fuel reserves at time when we know that three-quarters of the proven reserves have to stay in the ground if we hope to avoid the worst impacts of climate change...So paying companies to find more fossil fuels is folly."

The report was produced jointly by Oil Change International, an advocacy group focused on moving the world away from fossil fuels, and the Overseas Development Institute, the U.K.'s leading independent think-tank on international development and humanitarian issues.

US

Despite numerous attempts to remove these subsidies in the US Congress (primarily the Republicans) have thwarted these efforts. The fossil fuel industry owns the Republican party who have consistently shown their loyalty to an industry that is rife with corruption and subterfuge. Internationally, the leaders from over 50 countries have made public commitments to phase out fossil fuel subsidies in the “medium term.” However there has not been much concrete action to date.

Canada

Canada's total federal and provincial support for the petroleum industry was close to $2.7 billion US ($3.6 billion Cdn at current exchange rates) in the 2013-14 fiscal year, with federal subsidies accounting for roughly $1.6 billion. In his election platform, Prime Minister Justin Trudeau pledged his government would end fossil fuel subsidies.

COP21

During the COP21 conference at the end of 2015, the UNFCCC released a statement which read: “An unprecedented coalition of close to 40 governments, hundreds of businesses and influential international organisations has called today for accelerated action to phase out fossil fuel subsidies, a move that would help bridge the gap to keep global temperature rise below 2°C.”

John Key, the New Zealand Prime Minister, presented the Fossil Fuel Subsidy Reform Communiqué to Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change (UNFCCC). Key said:

“Fossil fuel subsidy reform is the missing piece of the climate change puzzle. It’s estimated that more than a third of global carbon emissions, between 1980 and 2010, were driven by fossil fuel subsidies.

Figueres said in accepting the Communiqué: “These subsidies contribute to the inefficient use of fossil fuels, undermine the development of energy efficient technologies, act as a drag on clean, green energy deployment and in many developing countries do little to assist the poorest of the poor in the first place...low oil prices are a good opportunity to really get going on this issue.”

Stefan Löfven, Prime Minister of Sweden, said: “History will prove fossil fuel to be a dead end. Sweden will be amongst the first fossil free welfare nations of the world. And eliminating fossil fuel subsidies is an important step on this path.”

Hakima El Haite, Environment Minister of Morocco, candidate for the presidency of COP22, said: “Not only do fossil fuel subsidies put a strain on government coffers but they also don’t help the poorest of society.”

Solutions

The end of fossil fuel subsidies is coming and there are ways that we can expedite this transition. As reviewed by Price of Oil here are four major ways we can address the problem of subsidies:

Increased transparency – governments must stop hiding the handouts they give to fossil fuel companies!
Support for the poor and vulnerable – we need to be sure that poor countries and communities are supported to ensure access to energy while removing these subsidies.
Global coordination – without a way for the world to coordinate on this effort, countries will continue to drag their heels.
Phase-out Deadline – we all know that unless you have a deadline, you’re apt to procrastinate. It’s time to set one for fossil fuel subsidy elimination!

Investor Warning: Fossil Fuels and the Risk of Stranded Assets

April 25, 2016 1 Comment Edit

It is becoming increasingly apparent that fossil fuels represent a substantial risk that should make investors wary. Fossil fuel reserves, including oil, gas and coal will be rendered obsolete in the coming decades, leaving investors holding valueless investments. A plethora of peer reviewed science tells us the curbing fossil fuel use is key to climate mitigation.

From widespread calamitous coastal flooding to devastating extreme weather events the need to urgently act on climate change has finally been accepted by every nation on earth. The economics of climate action is sound. A cost benefit analysis reveals the overwhelming logic. We must the eradication of fossil fuels as soon as possible. The impetus to act on climate change, once dismissed by some, is now a fact of life for all thinking people.

There is already downward pressure on the fossil fuel industry and this will only intensify in 2016 as we begin to see policy shifts and new regulatory regimes. The Paris Climate Agreement formally signals the end of fossil fuels.

We are already seeing trillions of dollars being divested from the fossil fuel industry. Much of the money divested is being reallocated to renewable energy, the primary competition for the fossil fuel industry. Investments in fossil fuels need time to mature, however post Paris time is the one thing that fossil fuel investors do not have.

The IPCC Synthesis Report indicates that the burning of fossil fuels must be completely ended by 2100. We must work quickly to radically reduce our use of fossil fuels because the longer we wait the more it will cost. We also risk surpassing dangerous tipping points from which we will not be able to recover. Simply put we cannot continue to burn fossil fuels if we hope to stay within the 2C upper threshold limit.

The concerns about fossil fuels and stranded assets were reviewed in an April 8, 2016, CBC Business article by Don Pittis in which he warned investors about the dangers of fossil fuels. As he explained, the issue of stranded assets is not merely the concern of environmentalists, it is central to shrewd analyses of the investment community. Concerns about stranded assets are coming from all quarters including mainstream, credible sources, like Mark Carney, governor of the Bank of England.

Research from the Canadian Association of Petroleum Producers has already announced a $50 billion drop in Canadian oil and gas investment in electrical power plant generation from fossil fuels. However, there are implications for the oil sands and pipelines.

As explained in the CBC article, a Oxford University study indicates that after 2017, fossil fuel powered electricity generation may "not be able to run long enough to pay off their capital costs, turning them into stranded assets." This study expands the stranded-assets concept to include what economists call capital.

"Investors putting money into new carbon-emitting infrastructure need to ask hard questions about how long those assets will operate for, and assess the risk of future shutdowns and writeoffs," says Cameron Hepburn, one of the academics involved in Oxford study.

"If the 2 C target is to be taken seriously, then current and future assets will have to be written off before the end of their economically useful life (become stranded assets) or we will have to rely on large-scale investments down the line in carbon capture and storage technologies that are as yet unproven and expensive," says the report.

While the Oxford study is focused on electricity generation the implications extend to the fossil fuel industry as a whole. According to Duetsche Bank at least half of all known fossil fuel reserves will need to be kept in the ground to stay within our carbon budget.

"For their own financial benefit, what investors must consider is whether the climate risk has been properly calculated into the future income stream." Pittis wrote. "If investors in power plants, pipelines and new oil development go ahead without proper regard to climate risk and find those assets stranded, they will be worth less than advertised."

The Financial Times covered the same study and reported:

"Virtually all new fossil fuel-burning power-generation capacity will end up stranded... A similar logic can be applied to parts of the capital stock."

Carbon dioxide remain in the atmosphere for centuries so we must appreciate not just annual emissions but their cumulative totals or the global carbon budget.

The Oxford paper states that capital stock created after 2017 would break the global carbon budget. However the Financial Times article suggests that the Oxford study is premised on some optimistic assumptions and therefore it may be more difficult to keep temperatures from rising beyond the 2C upper threshold limit. This assessment suggests that the risks are even greater than those presented in the Oxford research.

Why would any sane investor put his or her money into a source of energy that is doomed to be shut down?

As explained in the FT article:

"[G]iven the longevity of a large part of the capital stock, the time for decisive change is right now, not decades in future."

As reported in the Green Market Oracle, just ahead of the Paris Climate Agreement two reports corroborated concerns about stranded assets. One of these reports come from the Think Tank, Carbon Tracker and another comes from Critical Resource, a firm that advises fossil fuel companies.

The Carbon Tracker report indicated that more than 2.2 trillion worth of fossil fuel projects are at risk of being stranded. Anthony Hobley, chief executive at Carbon Tracker said:

"Our report offers these companies a warning [about] avoiding significant value destruction,"

The top four countries at risk from stranded fossil fuel assets are the US at $412 billion, Canada at $220 billion, China at $179 billion and Australia at $103bn. The companies with the greatest exposure are Shell, ExxonMobil and Pemex.

Despite these risks, $1.3 trillion is being spent on new oil projects and $124 billion is being spent on existing projects. We need to start with a moratorium on new fossil fuel development.

Daniel Litvin, MD of Critical Resources said.

"The critical mass point could be as soon as a couple of years down the road, which is pretty soon for an industry that has been around for 100 years."

How can the oil industry fail to see the writing on the wall? The fossil fuel industry would not be the first that failed to see clear signs of its demise. Hobley pointed to the demise of Kodak and Blockbuster as illustrations.

In the past decade, the emissions implied by the investment in power generation have been rising at 4 percent a year. The math behind this investment growth when partnered with the need for climate action make investing in fossil fuels a fool's errand.

Related
The Risks Associated with Stranded Fossil Fuel Assets
COP21 and Stranded Fossil Fuel Assets
Fossil Fuel Divestment and Stranded Assets
Infographic - Stranded Fossil Fuel Assets
Oil is a Bad Investment
The Fossil Fuel Industry has Reason to be Nervous
Fossil Fuels are a Clear and Present Danger
Study on the Fossil Fuel Industry and the Bursting of the Carbon Bubble
Graph of Fossil Fuels GHG Contributions
The Cost of Carbon
Now is the Time to End our Reliance on Fossil Fuels
Fossil Fuels are making the Planet Uninhabitable
Fossil Fuels are the Most Hated Industry in the US
Exxon is not the Only Bad Apple: The Whole Fossil Fuel Industry is Rotten to the Core

Agreement on a Pan-Canadian Carbon Pricing Scheme

March 04, 2016 Add Comment Edit

It looks as though Prime Minister Justin Trudeau's Liberals are moving forward with a national carbon pricing scheme albeit adapted to regional circumstances. On Thursday March 3, 2016, Trudeau announced that the federal government along with all ten provinces have agreed to a "comprehensive and ambitious plan" to put a price on carbon.

Carbon pricing (which includes both cap and trade and a carbon tax) leverages the market to disincentivize emissions intensive activities by making them more expensive while incentivizing low carbon technologies. In effect carbon pricing integrates the true cost of carbon which is currently not reflected in the market. Carbon pricing is the best way to help governments reduce emissions while minimizing economic impacts.

There are some compelling arguments that have been made in support of carbon pricing. In April 2015, 65 researchers in Canada published a report that indicated putting a price on carbon is key to reducing emissions in the country. With oil prices so low this may be the best time to put a price on carbon. Although carbon pricing was rejected by the previous Conservative government under Stephen Harper, it was part of the Liberal's raft of campaign promises.

Canada's new Prime Minister has said that he will respect the unique circumstances of each province and this appears to be the caveat that secured the support of detractors like Saskatchewan's Brad Wall. "There will be different approaches but pricing carbon is part of the solution that this country and all of its premiers will put forward," Trudeau told a news conference.

There are predictable detractors like David McLaughlin former President and CEO of the National Round Table on the Environment and the Economy and a Conservative Chief of Staff. In a Globe and Mail article McLauglin indicated that carbon pricing, particularly as it is being proposed in Canada, "is the least effective way to reduce emissions."

Canadians support climate action and carbon pricing. A poll published in January 2015, when Harper's Conservatives where still in power, found that the majority of Canadians said that Canada "should do more" to combat climate change. A total of 69 percent of those surveyed said that they favored a carbon reduction incentive and 59 percent said that they supported "increasing taxes on those activities and products that generate more emissions." While 78 percent supported, "lowering taxes on those activities and products that produce lower emissions," only 44 percent supported “introducing a national carbon tax that would be phased in over time.”

As reported by the CBC an Angus Reid Institute poll at the end of 2015, a solid majority of Canadians see climate change as a serious threat and want to see emissions reductions even if it increases their annual energy costs. The poll indicates that Canadians prefer a cap-and-trade system over a carbon tax.

Although the previous Conservative government claimed that carbon pricing would kill jobs in October last year Desmog reported on a Clean Energy Canada study that indicated action on carbon pricing could create a million jobs in the province of BC alone.

To further refute the claims of the Harper Conservatives, all around the world countries are adopting carbon pricing and the economic hit promised by detractors has not materialized. Carbon pricing has the support of the president of the World Bank and the World Economic Forum, it is already being implemented in Europe, China, South Korea and Mexico

In the US California and other states are showing the carbon pricing works, this includes the RGGI and there are already working carbon pricing schemes in Canada, BC has a carbon tax, Ontario and Quebec have a cap and trade system. Most recently the new provincial government in Alberta has come onside with a carbon levy.

Although the introduction of carbon pricing in Canada may appear to be a major step forward for climate action, there are concerns that the greening of Canada will be financed through the construction of new crude oil pipelines. This would be an oxymoron.

Trudeau and the provinces will meet again in six months to deal with the specifics of the plan.

Related
A Compelling Argument for Carbon Pricing
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Why we Should Put a Price on Carbon
Why a Carbon Tax May be the Best Way to Reduce CO2 (Video)
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US Cap-and-Trade: What and Why
Green Capitalism

Obama Proposes Oil Tax and Clean Energy Infrastructure Investments

February 11, 2016 Add Comment Edit

President Obama has recently proposed an oil tax and a clean energy infrastructure investment plan that would create a “more integrated, sophisticated and sustainable transportation sector." The proposal is part of a budget request that calls for annual spending of $32 billion and it will be paid for with a $10 a barrel oil tax. The ten year 320 billion is designed to finance a 21st century clean energy infrastructure in the US. This includes annual spending of $20 billion for national transportation initiatives, $10 billion in for cities and states and $2.4 billion for green vehicle research.

The President's proposal is in addition to his successful push to raise fuel-efficiency standards for cars and trucks, green energy subsidies and the clean power plan that will reign in carbon pollution from power plants. He has also succeeded in pushing through a global climate deal in Paris.

This proposal would reduce emissions from the transportation sector which is responsible for almost a third of US carbon emissions. Transportation sector investments include among other things, high speed rail. There are also investments in what is known as the Transportation Income Generating Economic Recovery (TIGER) stimulus program. TIGER awards grants for transportation projects with "measurable economic and environmental benefits.” Another $10 billion a year would go to local, regional and state governments to invest in green infrastructure and more livable cities. The Climate Smart Fund would reward states that make greener choices with existing federal dollars, as well as competitive grant programs to promote region-wide planning, more livable cities, and infrastructure projects with greater resilience to climate impacts.

In addition to the tax on oil and clean infrastructure investments, the Obama administration is also creating private sector incentives for low carbon technologies. Together these cleantech investments will not only enable the US to transition away from fossil fuels they will create jobs and grow the economy.

Despite the fact that Obama's plan would supply jobs, drive the economy and advance climate action, Republicans can be counted on to kill the proposal. While environmental groups lauded the fact that Obama is standing up to big oil and putting a price on carbon pollution. Conservatives,well known for their opposition to climate action, say that they are concerned that gas prices could increase by as much as 25 cents a gallon.

"President Obama's proposed $10 per barrel tax on oil is dead on arrival in the House," Majority Whip Steve Scales (R-La.) said in a statement. "The House will kill this absurd proposal."

The oil industry, which has seen declining profits is also pushing back against the plan spinning the proposal as a jobs killing tax grab that will hurt consumers.

"The White House thinks Americans are not paying enough for gasoline, so they have proposed a new tax that could raise the cost of gasoline by 25 cents a gallon, harm consumers that are enjoying low energy prices, destroy American jobs and reverse America’s emergence as a global energy leader," American Petroleum Institute President Jack Gerard said in a statement.

The White House does not deny that the President's clean transportation proposal would increase fossil-fuel prices, however they said that this would create "a clear incentive for private-sector innovation to reduce our reliance on oil and invest in clean-energy technologies that will power our future."

There is little chance that Republicans will turn on their petrochemical puppet master. However, a future administration and legislators with more common sense will eventually get behind the initiative.

Related Posts
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A Compelling Argument for Carbon Pricing
We Can Reduce Emissions and Tackle Climate Change
Curbing Fossil Fuels - Carbon Pricing and an End to Subsidies (WEF Summaries)
The Prospects for Putting a Price on Carbon
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California's Cap-and-Trade Leadership
South Korea Passes Cap-and-Trade Legislation
Mexico Passes Climate Change Law
US Cap-and-Trade: What and Why
US Cap-and-Trade: Obstacles and Solutions

Diminishing Profits Signal the Beginning of the End of Oil

February 04, 2016 Add Comment Edit

Oil is dying. Low oil prices are erasing profits and setting into motion a death spiral from which fossil fuels will not recover. Big Oil is cutting costs, and scaling back production, this results in smaller returns and diminished investor confidence. The addition of carbon pricing schemes and the elimination of subsidies will ultimately inflate prices and reduce demand.
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The profits of the big oil companies keep falling along with the price of a barrel of crude. In 2015, the profits of oil behemoths like Shell, Chevron, Exxon Mobil and BP tumbled. Together, these big four saw profits decline by an average of 65 percent last year. These falling margins have a cascade of impacts that are hastening the demise of dirty energy.

Shell

At the beginning of 2014, Royal Dutch Shell’s quarterly earnings for the end of 2013 fell by almost half (48%). This was the third consecutive quarter of disappointing earnings. This was in part due to Shell’s failed multibillion dollar Alaskan drilling program. The situation has continued to deteriorate for the oil giant as Shell’s profits fell by 56 percent in the fourth quarter of 2015. Over the course of the entire year, Shell’s earnings fell by 80 percent compared to 2014. To make matters worse, Standard & Poor's downgraded Shell’s long term credit rating in February and further downgrades have been intimated.

Chevron

In 2015, Chevron saw its profits decline by 40 percent compared to 2014 and the company reported losses in the fourth quarter of last year. Chevron lost $588 million in the last quarter of 2015; during the same period in 2014 the company made a profit of $3.5 billion. This is the first time the company has reported quarterly losses since 2002.

Exxon Mobil

Exxon Mobil saw its quarterly profits decline by 58 percent at the end of 2015 and the company’s profits are down by half compared to the year before. Its exploration and production business lost $538 million in the U.S.

BP

British Petroleum said that its profits fell by 91 percent last year. They recorded a $3.3 billion loss in the fourth quarter of last year and $6.48 billion in losses for the year. Like Shell, the company also kicked off the new year with a long term credit downgrade from Standard & Poor’s.

Macro realities

There is no end in sight to low oil prices and falling share prices. We have not seen a commodity collapse of this magnitude in decades. However, unlike preceding oil crashes, environmental pressures and economic trends make the longer term financial forecast look bleak for fossil fuels.

Oil production continues to outpace demand and more supply is on the way now that the sanctions against Iran have been lifted. The situation is about to get even worse as storage space is nearing capacity.

While many are waiting for oil prices to rebound they may be disappointed. Driven by climate concerns and the declining price of both renewables and energy storage, we are seeing unprecedented interest in non-fossil fuel based energy production from all quarters.

In the longer term, the outcome at COP21 lends credence to the belief that fossil fuels will be subject to a host of headwinds. The fossil fuel industry is also having to deal with a rapidly expanding number of legal challenges, negative public perceptions and disruptions due to protests.

Death spiral

In addition to market pressure associated with low oil prices, producers realize that to bring oil prices up you have to decrease supply (i.e. reduce production). However, decreased production will further diminish returns and this will scare off investors.

Low oil prices have already shut down hundreds of extraction operations. Oil prices are currently about half of what they need to be to make the tar sands and shale oil viable. The exodus had begun even before oil prices fell to their current lows. At the beginning of last year, Shell announced that it was among a number of oil companies that are shelving their tar sands operations. Many are predicting that at least half of all shale oil producers will perish this year. It is not only energy intensive forms of fossil fuels that are at risk, as explained by Jesse Thompson, an economist at the Federal Reserve Bank in Dallas, “at this price range, nothing is safe.”

Big oil is responding to low oil prices and declining profits by slashing capital spending and operating expenses. For example, Exxon has said that it will cut spending by one quarter this year compared to last and BP is expected to cut spending by almost $3.6 billion this year. This translates to less production and exploration. Less exploration means lower reserves and lower reserves sends a powerful message about the future of the industry.

The linkage between lower oil prices and decreased production have set in motion a causal chain of events that does not bode well for the fossil fuel industry. As explained in a New York Times article:

"To assure their futures, oil companies need to add to their reserves to replace production, but with plunging prices, companies are delaying or canceling projects and struggling to add to their reserves."

Reduced earnings are translating to cuts in production. For Shell that means delaying a liquefied natural gas facility in Canada and a deep water oil and gas development in Nigeria.

The combination of less production and low oil prices translates to lower profits which puts downward pressure on the dividends that they can pay out to investors. This in turn, curtails investor interest. While big oil is trying to reassure investors by saying that they will continue to pay big dividends, the situation is untenable.

Maintaining investor interest will be challenging for BP and others, as explained by Biraj Borkhataria, an analyst at RBC Capital Markets in London. He is quoted as saying:

"2016 is likely to be a year of transition for BP with limited ability" to cover its dividend unless oil prices rose substantially.

Michael Hewson, an analyst at CMC Markets puts it this way:

"But with average oil prices still trading at multi-year lows so far this year the question now needs to be asked in how long can BP sustain the dividend at current levels, without an imminent pick up in oil prices."

When investor confidence evaporates, the fate of the fossil fuel industry is sealed.

The position of big oil goes from bad to worse when we factor carbon pricing and an end to subsidies. This will raise the cost of fossil fuels and reduce demand.

Although it will take decades it is clear that we can kill what Bill McKibben has called the immortal zombie of fossil fuels.

Source: Global Warming is Real

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Oil is a Bad Investment

January 21, 2016 Add Comment Edit

Iinvestors can no longer avoid the realization that their fossil fuel holdings are fraught with risks. While there are many factors at play, the 18 month slide and low price forecasts combine to make the point that investing in oil makes no economic sense.

In the short term China's slowing growth and the glut of oil are driving down the price. The situation will be exacerbated by the lifting of sanctions allowing Iran to sell its oil. High production and lower than expected demand mean that oil prices will continue to fall well into 2016.

Oil has fallen a long way, it has lost 80 percent of its value compared to its high in January 2014 when it was more than $110 a barrel (bbl). When oil slipped below $60/bbl a number of intensive drilling operations from the Arctic to the Canadian tar sands and American shale oil ceased to be profitable. These price declines reduced production but not enough to stop oil's plummeting trajectory.

At the end of 2015 the price oil plunged below $40/bbl. As the new year dawned oil prices continued to slide, they even briefly slipped below $30/bbl. US oil prices fell to $26.55/bbl on January 20th. We have not seen oil prices this low in 14 years and we have not seen an 18th month long slide in more than 60 years.

According to the Financial Forecast Center the outlook for the next six months suggest that oil will continue to decline, falling to around $25/bbl by the start of the summer.

Although the market will eventually balance out supply and demand, the longer term outlook is still challenging for oil prices. The eia predicts that oil prices could fall to as low as $20/bbl in 2017. The Telegraph reports that some are predicting that oil could go as low as $10/bbl.

Looking even further out the situation for oil may become even more difficult. The COP21 deal sent a powerful message to the markets. The era of oil is coming to an end and as we gear up for the implementation date of the deal in 2020 there will be unprecedented downward pressure on oil prices.

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Fossil Fuel Subsidies and Renewable Energy Post COP21 (Infographic)

December 26, 2015 Add Comment Edit

One of the most important things we can do to curb climate change is to end fossil fuel subsidies. This would reduce the amount of fossil fuels burned and it would level the playing field for clean renewable sources of energy. Event thought 60 percent of all new investment is going into renewable energy fossil fuels still get the lions share of subsidies. The International Energy Agency (IEA) say that government subsidies for fossil fuels are 12 times greater than those for renewable energy.

It is estimated that removing fossil fuel subsidies would reduce greenhouse gas emission by 10 per cent by 2050.

As reported in the New Yorker, the International Monetary Fund (IMF) said that there are $5.3 trillion worth of fossil fuel subsidies in 2015 or six and a half percent of global G.D.P.. This breaks down to $10 million a minute or more than the entire health spending of all the world’s governments.

According to Reuters fossil fuel subsidies exceed climate aid by a ratio of 40 to 1.

Jake Schmidt, of the Natural Resources Defense Council, said: "Given tight budget times and the need to address global warming, subsidising 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."

Prince Charles said the governments must end fossil fuel subsidies. Realizing the dream of ending fossil fuel subsidies was brought one step closer at the recent COP21 climate meetings in Paris.

Almost 40 countries have endorsed the Fossil Fuel Subsidy Reform Communiqué, including: Canada, Chile, France, Germany, Italy, Malaysia, Mexico, Morocco, Peru, the Netherlands, the Philippines, Samoa, the U.S., Uganda and Uruguay.

According to the UNFCCC statement: “An unprecedented coalition of close to 40 governments, hundreds of businesses and influential international organisations has called today for accelerated action to phase out fossil fuel subsidies, a move that would help bridge the gap to keep global temperature rise below 2°C.”

John Key, the New Zealand Prime Minister, presented the Fossil Fuel Subsidy Reform Communiqué at the Paris Conference said: “Fossil fuel subsidy reform is the missing piece of the climate change puzzle. It’s estimated that more than a third of global carbon emissions, between 1980 and 2010, were driven by fossil fuel subsidies...Their elimination would represent one seventh of the effort needed to achieve our target of ensuring global temperatures do not rise by more than 2°C. As with any subsidy reform, change will take courage and strong political will, but with oil prices at record lows and the global focus on a low carbon future—the timing for this reform has never been better.”

Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change (UNFCCC) said in accepting the Communiqué: “These subsidies contribute to the inefficient use of fossil fuels, undermine the development of energy efficient technologies, act as a drag on clean, green energy deployment and in many developing countries do little to assist the poorest of the poor in the first place.

Some wrongly argue that fossil fuel subsidies help the poorest members of society. According to the IEA said. Just 8 percent of aid reached the poorest 20 percent of each country’s population last year. Most of the benefits—85% to 90%—typically accrue to those on middle incomes and the wealthy

Hakima El Haite, Environment Minister of Morocco, candidate for the presidency of COP22, said: “Not only do fossil fuel subsidies put a strain on government coffers but they also don’t help the poorest of society.”

In 2011 President Obama's attempts to eliminate $4 billion in oil and gas subsidies from the U.S. budget was denied by Congress. However in the US and around the world pressure is growing to definitively end subsidies that are wrecking the climate and imperiling life on earth.

Here is an infographic that does a good job of visually illustrating the issue of fossil fuel subsidies:

Financial Losses Associated with Fossil Fuels

November 23, 2015 Add Comment Edit

The losses associated with fossil fuels are staggering and it is not just oil producing states and companies that are feeling the heat. Pension funds going long on oil are getting killed as they hope that prices will rebound.

With oil prices around $50 per barrel, the IEA estimates that OPEC states have lost half a trillion dollars a year in revenues since the oil price fell from over $100 a barrel in 2011-2014 to current levels. The declining price of oil is also creating volatility in the stock market and significantly impacting the petro-economies of both Russia and Canada.

As reported by the Star, a new study from the Canadian Centre for Policy Alternatives indicates that fossil fuel holdings in Ontario's five largest pension funds lost a total of $2.4 billion. Here is their review of the amount of money lost due to falling oil and coal prices from June to December 2014:

Ontario Teachers’ Pension Plan: $1.77 billion
Ontario Municipal Employees Retirement System: $192 million
Healthcare of Ontario Pension Plan: $53 million
Ontario Pension Plan: $154 million
Ontario Public Service Employees Union Pension Trust: $188 million

California pension funds have been decimated by the declining price of fossil fuels. This has caused the state to pass legislation forbidding big pension funds from investing in coal. Others institutions are getting out of fossil fuels altogether. A recent report from consultancy Arabella Advisors found that 430 institutions, including the Canadian Medical Association, have committed to phasing out their fossil-fuel investments.

A Corporate Knights Capital report estimated that the CPPIB has lost $7 billion (US) in value since 2012 due to the decline in the values of carbon intensive industries. Bill & Melinda Gates Foundation Trust Endowment have lost $1.9 billion, and the University of Toronto pension and endowment fund lost $419 million.

More than 100 institutional investors representing $8 trillion in assets have signed the one-year-old Montreal Carbon Pledge. Those that took the pledge have committed to “measure, disclose and reduce portfolio carbon footprints.” Signatories include Addenda Capital, The Co-operators and the United Church.

“If they’re putting money into fossil-fuel stocks, it should be incumbent on managers and trustees to justify why they’re doing that,” said Marc Lee, a senior economist with Policy Alternatives.

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Six Types of Sustainability

September 10, 2015 Add Comment Edit

Sustainability is an expansive concept that applies widely. Commonly, the definition of sustainability is narrowly defined particularly by entrepreneurs and some members of the business community.

Many focus on profitability, at the expense of the five other dimensions of sustainability. Profitability is only one of the three pillars of the so called three legged stool of sustainability (people, planet and profits).

While no one can deny the importance of profitability, some fail to recognize how the other elements of sustainability can also contribute to or detract from the bottom line.

The three legged stool can be further subdivided into six overlapping sub-components of sustainability.

Commercial sustainability is largely about the importance of generating a profit to sustain a company's viability. Environmental sustainability is about the environmental impacts associated with a business while ecological sustainability is about the impacts on bio diversity. Economic sustainability is a reflection of the market's ability to carry a business while social sustainability deals with the social impacts of a business. Finally regulatory sustainability is about being onside with government regulations and laws.

Failure to understand and incorporate issues on any of these dimensions of sustainability can have adverse implications for the others.

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Summary of Recent Reports on the Costs of Climate Action/Inaction

September 04, 2015 Add Comment Edit

Reports are coming in that make it hard to ignore the economic benefits of action on climate change. This includes recent reports from Citi the world's third largest bank and the London School of Economics, one of the most prestigious and respected schools in the world.

In April 2015 the World Health Organization (WHO) and the US Department of Energy published reports that demonstrate just how high the costs of inaction could be.

According to a study by the WHO, the financial costs of air pollution in Europe alone amounts to $1. trillion each year from death and disease. This is one tenth of Europe's gross national product. The economic costs of deaths alone represent $1.4 trillion.

As reported by Bloomberg, a US Energy Department report indicates that in the US, extreme weather costs about $33 billion each year.

According to a Tufts University report commissioned by the NRDC, the costs of climate inaction to the US economy is equivalent to more than $3.8 trillion annually or 3.6 percent of the nation's GDP by 2100. Hurricane damage, real estate losses, increased energy costs and water costs add up to a price tag of 1.8 percent of U.S. GDP, or almost $1.9 trillion annually (in today’s dollars) by 2100. Hurricane damages: $422 billion Real estate losses: $360 billion Increased energy costs: $141 billion Water costs: $950 billion.

The NRDC report indicates that if left unchecked global warming will cause drastic changes to the planet’s climate, with average temperature increases of 13 degrees Fahrenheit in most of the United States and 18 degrees Fahrenheit in Alaska over the next 100 years.

As reported in skeptical science, peer-reviewed projections indicate that the costs of inaction on climate change outweigh the costs of addressing the problem by trillions of dollars.

"The benefits of reducing greenhouse gas emissions outweigh the costs by trillions of dollars. Combining the results of the report by the German Institute of Economic Research and Watkiss et al. (2005) studies, we find that the total cost of climate action (cost plus damages) by 2100 is approximately $12 trillion, while the cost of inaction (just damages) is approximately $20 trillion."

Image Credit: Skeptical Science

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