“Clearly, the oil industry is not going to shut down in the near future.”
According to BNEF, energy transition investments hit $500 Billion in 2020, beating the previous year by 9% despite the economic disruption caused by the COVID-19 pandemic. Aggressive planning, implementation and trillions of funds are still required towards green investments to transition to a low carbon economy. This being said, the world is framing policies to uplift renewable sector and create favorable environment to attract more and more investments to drive energy transition.
António Guterres, UN Secretary-General at focused on the need for concrete support and highlighted that Developed nations should stop coal usage by 2030 and others by 2040 at the Leaders’ Climate Summit, which is certainly an equitable and achievable target. This indicates there is also a dire need to directly cut or slow down funding and investments into fossil fuels.
Is the grass greener on the other side?
Recent events clearly indicate that there are trillions pumped into fossil fuels despite a global effort to cut direct spending and make a shift to low-carbon emission fuels. Not only are fossil fuel projects being funded, but fossil fuel companies are also returning promising results and profits to investors. A Guardian article highlighted how Russia has no plans to rein in its fossil fuel production in the coming decades, despite the significant global efforts to transition to a low-carbon economy. Another analysis by the Banking on Climate Chaos 2021 report, fossil fuel companies received financing of $3.8 trillion through investments made by the top 60 of the world’s largest commercial banks.
Clearly, the oil industry is not going to shut down in the near future.
Is transition possible?
Some believe, transition is a natural process and can be achieved in the long term. When time comes, Big Oil companies can switch to renewable energy with the capacity and money they hold. Ongoing operations are capital intensive and are generally long-term projects which can take time to gradually turn towards 100% renewable energy. This was also one of the reasons why Warren Buffet still holds a significant stake into Chevron, one of the largest in the O&G sector.
Alexander Novak told the Guardian that Russia did “not see that we will achieve a peak in [gas] production anytime soon” because the world’s appetite for gas would continue to grow in the decades ahead despite its growing number of climate targets.
This brings in the statement by António Guterres, UN Secretary-General, an equitable and achievable target needs to be addressed as it may not be possible for every nation to switch to renewable or clean energy at one given deadline for all. Hence, another possible reason as to why fossil fuel investments have still not peaked and may continue to remain consistent.
Major economies like India and China, have still not peaked in terms of GHG emissions and are dependent on coal. China, though pushed on increasing renewable capacity, failed to achieve higher targets in green financing in 2020. Its energy mix is up from 16% to 20% in terms of non-fossil fuels, but at the same time China’s Green bond issuance declined due to pandemic in 2020. This shows the urgency to decline investments into fossil fuels, to balance with any further uncertainty of decline in renewable investments in the near future.
Computing the cost implications of faster transition, making renewable source as a main profit driver in the short term and changing macroeconomic policy that favors both the nation and the transition are few of the hurdles faced by many underdeveloped and developing nations.
Renewable energy cost is decreasing at a faster rate than the previous decade. A recent report by Carbon Tracker, also predicts that by 2030s fossil fuels can be replaced by wind and solar power if they continue to grow at the current rate. This comes because of growing capacity and increasing investments into clean energy. However, since trillions are funded into fossil fuels as well over the past few years – either this must decline at an increasing rate or flow of funds into renewable energy must overpower to stay on track to achieve the target of 1.5 or 2 degree Celsius by 2050.