Can this new blueprint for fossil fuel divestment stir industry to action?
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Version 0 of 1. A group of energy and finance analysts has given companies targeted by the divestment movement – Chevron, ExxonMobil, BP and others – a blueprint for extricating themselves from fossil fuels. Four years ago, a report by the Carbon Tracker Initiative sparked the worldwide movement to persuade colleges, philanthropists and pension funds to divest from the fossil fuel companies. But will the CTI’s new report work? Are these companies even interested? A lot has changed in four years. The US coal sector, hit by tighter emissions regulations and declining exports to China, is on the ropes. The price of oil has fallen from a high of $115 a barrel last June to $60 a barrel today. Institutions that divested from coal and other fossil fuels before the dive accidentally found themselves occupying both the moral high ground and the bullish side of the market. Last December, Britain’s climate change secretary said that companies should be required to disclose any large investments in fossil fuels to their investors and this March, the Bank of England warned insurance companies to stay away from fossil fuel investments. According to CTI’s report, a fossil fuel company trying to prepare for the future – specifically, the future laid out in the International Energy Agency (IEA)’s 2C Scenario – would move away from expensive, high-risk investments in areas like tar sands, ultra-deep water drilling and the Arctic, and focus on diversifying its business models. It would make new investments in oil and gas only if this fitted in to a future that assumed a lowered demand for its products. It would prepare not just for run-of-the-mill fluctuations in supply and demand, but for “black swan” events, like a sudden move to cap global emissions. All of this would go against standard practice – historically, oil and gas companies have diversified their portfolios when energy prices have been high, not low. And so far, investigating climate risk has led to few changes. This January, Shell agreed to test whether its current business model is compatible with the 2C Scenario – while at the same time announcing plans to resume drilling for oil in the Arctic. A year ago, ExxonMobil agreed, for the first time ever, to study the risks that stranded assets – assets that suddenly lose their value – held to its business model, but then reached the following conclusion: “We are confident that none of our hydrocarbon reserves are now or will become ‘stranded’. We believe producing these assets is essential to meeting growing energy demand worldwide, and in preventing consumers – especially those in the least developed and most vulnerable economies – from themselves becoming stranded in the global pursuit of higher living standards and greater economic opportunity.” Still, as Rob Schuwerk, the US senior counsel for the Carbon Tracker Initiative put it in an interview yesterday: “We’re dealing with a rather exceptional problem with climate change. And also one where the consequences fall so heavily on a particular sector.” This reaction on the part of energy companies is not surprising. What remains to be seen is the report’s effect on its other intended audience: investors and regulators. The experience of the Rockefeller family with ExxonMobil suggests that shareholders will have an uphill battle, but Shuwerk has particular interest in ways that rulemaking can pressure companies to plan ahead. “We’re starting to see regulators take note of the problem,” he says. “Under the interpretation of existing regulations companies should be disclosing more. Companies need to respond to address the risks.” |