2017 may
go down in history as the year when it frst became clear that the fossil fuel
era was fnally starting to sputter to an end. The cost of new solar and wind
power started to fall below the price of new coal and gas plants in a growing
number of regions. The CEO of NextEra Energy, one of the largest electricity
producers in the US, now predicts that “early in the next decade” — just a few
years from now — power will be cheaper from unsubsidized new wind and solar
plants in the US than from existing coal and nuclear plants. It’s still far from game over for the
fossil fuel industry, but the game hasdrastically changed.
In the “old days” of early 2017, the argument could still
legitimately be made that yes, intermittent renewables are getting cheaper, but
they are still intermittent – solar output crashes when the clouds roll in, and
wind turbines are just sleek sculptures on a calm day. Long term energy storage
and large scale battery storage were touted as the missing link. But the commissioning
of a 100-megawatt grid-connected battery in South Australia in late November
2017, only 100 days after it started construction, was a stunning illustration
that large-scale battery storage is now economically and technically feasible.
On the transportation front, China, India, the United
Kingdom, France, and California all announced efforts to accelerate the adoption of electric cars and
phase out internal combustion engines. These efforts have led analysts to bring forward their projections
for the date when global oil consumption peaks and then starts its permanent
decline. In July 2017, Goldman Sachs forecast that global oil demand could peak
as early as 2025. While oil company scenarios are unsurprisingly still mostly
in denial about the likely speed of the energy transition, even ExxonMobil
admitted in early 2018 that the Paris Agreement meant that oil consumption
could easily drop by 20 percent between 2016 and 2040 — and might even be cut
in half.
Tightening the Financial Screws
While
these technical and economic developments are hugely signifcant for the demand
side of the clean transition equation, developments in 2017 that will constrain
financing for dirty energy supply were equally game-changing. Most fossil fuel companies
don’t have the billions in cash it takes to reach, produce, and transport
fossil fuels without the support of big banks. Banks are central actors in how
this transition will play out.
In June,
Dutch bank ING clarifed an existing tar sands policy by ruling out project fnance
for tar sands production and transport, explicitly excluding pipelines such as
Keystone XL. Later in the year the bank announced it would phase out lending to
any utility with more than 5 percent of its power coming from coal. In October,
French bank BNP Paribas made an even more ambitious commitment to move away from
extreme oil and gas fnancing (see page 23).
Two
months later at the One Planet Summit in Paris, the trickle of fnancial
institutions restricting their fnance for fossil fuels grew into a fast-flowing
stream. The World Bank announced it would no longer fnance oil and gas
extraction after 2019. French insurance giant AXA landed a huge blow to the
fossilfuel industry with a commitment to cease insuring tar sands production
and pipelines and new coal mines and power plants. AXA will also divest nearly
$4.5 billion from tar sands and coal companies. At the same summit, other major
French banks announced further restrictions on their support for tar sands.
The
progress made in Paris rapidly crossed the oceans. Before the end of 2017 the
governor of New York promised to cease state pension funds’ investments in
entities “with signifcant fossil-fuel activities.” Then in January 2018, Mayor
Bill de Blasio held a press conference in a community center that had been flooded
by Hurricane Sandy, and announced that New York City pension funds’ existing
partial divestment from coal would be extended with a target to divest their $5
billion in holdings in a range of fossil fuel companies.
In
February 2018, the University of Edinburgh announced that its endowment — the
third biggest educational endowment in the U.K. — would dump its stock in oil
and gas companies. The endowment had already divested from coal and tar sands —
as have the other two biggest university endowments, for Oxford and
Cambridge.14 The University of Edinburgh has not been the only investor to
withdraw from the worst of then fossil fuels and then, under continued activist
pressure, and presumably because they realize that getting out of fossils
hasnot caused them any signifcant fnancial harm, withdraw fromthe whole fossil
fuel sector.
Stuck in the Tar Sands
However, all this positive technological and fnancial
sector news over the past year is not reflected in the top-line numbers on bank
funding in this report card. On the contrary, the $115 billion in bank support
for the largest extreme fossil fuel companies in 2017 is 11 percent higher than
in 2016. But a closer look at the data reveals that this uptick is entirely due
to a whopping 111 percent increase in bank lending and underwriting to tar
sands extraction and pipeline companies and projects in the past year. Strip
out the tar sands numbers,and bank support for the extreme fossil sectors
continued its rapid decline, dropping 17 percent over the past year to $68 billion.
Banks did not suddenly decide in 2017 that tar sands oil
is a great long-term prospect. Rather, the increase in funding was in large
part to fnance the purchase by pure-play Canadian tar sands companies of the tar
sands reserves of the oil majors. Companies including Shell, ConocoPhillips and
Statoil ofoaded more than $23 billion in Canadian assets in 2017, in order to
focus on lower cost reserves elsewhere. Another factor driving up the tar sands
numbers for the biggest global banks in 2017 was $3 billion for Kinder Morgan
toward the costof the highly disputed Trans Mountain pipeline from Alberta
tothe British Columbia coast.
The massive hike in bank support for tar sands in 2017 —
to nearly $47 billion — led this sector to overtake coal power, the best funded
of the extreme fossil sectors in 2016. Overall support for coal power has stayed
just about stagnant in the last three years. And yet, though the Chinese banks
are the biggest funders of coal power, the data show an increase in non-Chinese
coal fnance over the past three years. This continued support comes despite
numerous banks adopting policies that limit their coal project fnancing,
because these policies fall short of restricting coal power fnancing in what are
increasingly its most common geographies (developing countries) and forms
(general corporate fnance).
Coal mining saw a small increase in bank support in 2017
(up 5 percent). However this came after a sharp 38% drop between 2015 and 2016.
This drop is presumably because many banks adopted policies restricting support
for coal mining around the time of the Paris climate conference. In 2017, two
thirds of all support for coal mining came from the four big Chinese banks —
and yet it is the Western banks whose coal mining fnancing trend shows a
dangerous resurgence upward.
Bank support for liquefed natural gas (LNG) terminals in
North America has fallen 62 percent since 2015 — far more thanfor any other
sector over the last two years. The fracking boomover the past decade led to a
rush of dollars being spent onLNG facilities to export surplus natural gas from
the United States. However, other countries, especially Australia and Qatar, also
spent big on LNG facilities, so the LNG capital investment boom has been
followed by a bust as the world now has surplus LNG production facilities.18
Whether this is a permanent bust or a temporary setback will be seen in the
coming years, as the fate of the more than 50 proposed North American LNG
export terminals is determined and global banks decide whether or not to
support these stranded assets in the making.
“When,” Not “If ”
The Paris Climate Agreement, for which many global banks have
declared their support, sets an ambition of keeping global warming to “well below
2 degrees Celsius above pre-industrial levels,” with the aim of limiting warming
to 1.5 degrees Celsius.20 The U.N. Intergovernmental Panel on Climate Change
(IPCC) will publish a report in September 2018 summarizing the implications of
the Paris Agreement’s more ambitious goal.21 A leaked draft of the report is, to
say the least, sobering. The world has already warmed by a degree, and another
half degree means much more disruption, including “fundamental changes in ocean
chemistry” from which it may take many millennia to recover, as well as floods,
droughts, deadly heatwaves, food shortages, migration, and conflicts. Two
degreeswill of course be much worse. Moreover, the IPCC’s draft reportstresses
that keeping below two degrees is a gargantuan task, even with “rapid and deep”
reductions in greenhouse gas emissions.
The game-changing developments in the energy sector in
2017 affirm that the question is not if, but when the fossil fuel sector goes
into terminal decline. But the date of the “when” has existential consequences
for people, societies and ultimately much of life on earth. While 2017 saw much
encouraging progress on clean energy, it also saw a terrifying escalation of hurricanes,
fres, and floods. These offer stark evidence of
just how much is at stake and just how ethically unacceptable it is for banks
to keep funding the fossil fuel industry’s expansion.
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