Climate policies place $1.6trn fossil fuel costs at risk, report warns

Fossil fuel companies are exposed to $1.6trn in potential expenditure by basing business decisions on existing policies rather than international climate goals, while businesses committed to sourcing 100% renewable electricity will require $94bn to reach their goals.

Two reports this week have highlighted the financial incentive of switching away from fossil fuels in favour of renewable energy sources such as wind or solar.

Firstly, Carbon Tracker’s new report warns that fossil fuel companies are making economic business decisions based on current policy pledges that will only limit global warming to a 2.7C increase. The report, released today (8 March), notes that $1.6trn of future spending on oil, gas and coal is at risk by the sector failing to align future investments to the international climate goals envisioned by the Paris Agreement.

“At present, governments’ policies fall a long way short of the ultimate goal committed to at Paris, but we should expect a ratcheting up of international efforts. Companies that misread the signals and overinvest in marginal oil, gas and coal projects based on a false sense of security could destroy shareholder value worth billions of dollars,” Carbon Tracker’s senior analyst and report author Andrew Gant said.

The report maps fossil fuel demand against the International Energy Agency’s (IEA) “beyond two degrees” scenario – which maps spend aligned to a 1.75C trajectory, or the “midpoint” of the Paris Agreement – with the IEA’s 2.7C “new policies” scenario.

By 2025, more than $1.3trn of oil expenditure could be at risk, with the US in danger of losing $545bn, according to the report. Risks linked to gas projects could reach $228bn, with Europe unlikely to need any new liquefied natural gas (LNG) capacity for up to a decade.

According to the report, private investors are at greater risk than state-owned variants. Private investors will be exposed to 88% of the spending on unnecessary fossil fuel projects under this prediction.

Money makes the world go brown

In stark comparison, much of the private sector is fully embracing the renewables transition. More than 120 companies have pledged to source 100% renewable electricity, many have targets in place for 2030 or earlier, through the Climate Group’s RE100 initiative.

According to new research from Bloomberg New Energy Finance (BNEF), companies that achieve commitments will do so at a cost of around $94bn. More than 87GW of wind and solar will be added globally through the committed spend, comparable to the UK’s existing power sector, the report notes.

“The clean-energy demands of these corporations will catalyse billions of dollars in clean-energy investment,” BNEF’s analyst Kyle Harrison said. “Corporations can have a real say in power-market design.”

However, the BNEF analysis found that not all RE100 members will meet commitments, although many will likely turn to certificates or energy contracts to help with progress towards the 100% goals.

Last week, digital payments multinational Visa became the latest firm to join The Climate Group’s RE100 project with a pledge to use 100% renewable across its operations by 2019. One-third (35%) of Visa’s global electricity usage currently comes from renewable sources, while three-quarters of its carbon footprint comes from the company’s data centres and office buildings.

Matt Mace

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