It is June 2013 and I am at the UK headquarters of BHP Billiton, the world’s biggest mining business. I am here representing Carbon Tracker, as its chairman, invited by BHP executive’s to give our position statement amidst a wave of exciting developments in the war on carbon. A just-published Bernstein Research report speaks of ‘the beginning of the end of coal’. It concludes that the ‘once unthinkable’ is now in sight: Declining Chinese energy demand by 2016. 

Three days later, BHP’s major rival, Rio Tinto, announced it was seeking to get rid of $3bn worth of Australian coal assets. It no longer fancied its chances of selling the product in China, its main market. 

Then, the International Energy Agency (IEA) released a report suggesting that the need for a new global climate change agreement is now urgent. Waiting until 2020 is not an option because doing so would mean an end to hopes of limiting global warming to less than two degrees. To have a good chance of staying below two degrees, the IEA says, 60 to 80% of coal will need to stay in the ground. 

Against this backdrop, it’s clear why BHP wants to meet with Carbon Tracker, the organisation set up by a group of financial analysts to try and bring the financing of carbon-fuel burning into line with the professed aspirations of international policymakers. 

I deliver a 15-minute statement. The body language among the four senior mining execs is not good. They shift in their seats as I set out the case. When I have finished, one of them allows hardly a space after my final full stop. ‘Well mate,’ he says, his Australian accent thick. ‘We have good quality coal assets, close to market. And we also have gas resources, unlike most of our competitors. We’re well diversified. So where is our problem exactly, d’ya reckon?’ 

I look at him, attempting a poker face, processing this. 

His response is consistent with what we are finding with other companies. Their first line of defence is not to question the carbon arithmetic of 80% unburnable reserves versus 20% burnable. It is to argue that their reserves are in the 20%. 

‘You may well be right’, I say. ‘But we would need to do a deep-dive into data, company-by-company, to know for sure, would we not? And that’s what we intend to do at Carbon Tracker, in the year ahead’, I add. ‘We will be providing data to help your investors look company by company, carbon fuel by carbon fuel, carbon fuel project by carbon fuel project. 

‘Meanwhile’, I continue, we have noticed an interesting thing in presentations like this. The first line of argument tends not to be a defence on behalf of your entire industry, but one specific to the company – that your particular set of assets can be burned safely.’ 

‘You can’t all be right, can you?’ 

Yes, exchanges like this one back in 2013 are still common today – and I document many similar experiences as part of my new book, ‘The Winning of the Carbon War’, which will be published in a serial format between now and the UN climate talks in Paris which take place at the end of the year. 

But the fact that conversations like this are taking place at all does suggest a very serious tipping point in the decline of fossil fuel industries. 

For the last 25 years, I have fought hard against defenders of finite carbon fuels. And I have lost battle after battle against the dark side. But the tide is turning and now, in 2015, I’m genuinely hopeful the light side can win the war. 

First, the cost of deploying renewable energy systems is generally falling. In fact, 2013 saw new renewable energy generation overtake conventional fossil fuel and nuclear installations globally. According to UBS, a combination of a solar roof, an electric car, and a domestic battery tank will offer a 7% return on investment every year, with a 6 to 8-year capital payback, without subsidy support, by 2020. 

In a briefing paper sent to clients and investors last summer, the Zurich-based bank describes centralised power stations as “not relevant”. It says it expects it will soon be cheaper and more efficient for businesses and households to generate their own energy to power their cars and to store any surplus energy in their own buildings even without subsidies. 

The bank, which holds assets of more than $1.5tn, urged its financial clients to “join the revolution”, saying that “by 2025, everybody will be able to produce and store power. And it will be green and cost competitive, i.e. not more expensive or even cheaper than buying power from utilities”. 

The Bank of England is currently investigating whether or not fossil fuel industries pose a threat to the stability of the capital markets. And a huge number of global investors are now promising to withdraw their funds from fossil fuel investments. 

Secondly, the cost of delivering hydrocarbons is rising. Last year saw peak capex spending by the oil and gas industry, and the lowest rate of discovery of new reserves in 20 years. According to the research company IHS, the volume of oil and gas found last year, excluding shale in the North America, was the lowest since at least 1995. 

Meanwhile, drilling for shale is losing its appeal, with US shale companies going bankrupt, drillers losing money and assets being written off by the multiple billions. According to the Wall Street Journal, shale companies have borrowed more than $200bn in bonds and loans to cover projects that might not even see the light of day. Since 2010, debt among oil producers has risen by more than 55%. 

The third trend that has emerged is that the politics of climate abatement are showing signs of aligning. Led by the good work of the most forward-thinking businesses, more than 100 countries now have a 2050 target to reach zero net greenhouse gas emissions. 

In the run-up to May’s General Election, all three main political parties agree that a strong treaty is required in Paris, with the Prime Minister, Deputy Prime Minister and Opposition Leader co-signing a letter of intention. 

Imagine yourself as the CEO of a big energy company, with these three mega-trends playing out around you right now. Your cost base is soaring. Your investors are becoming increasingly dissatisfied. Your clean-energy competitors are finding it easier to grow, thanks to plunging costs. Analysts are more and more bullish about the need and potential for a low-carbon clean energy future to be realized, buoyed by a clear shift in direction by policymakers. 

Any one of these challenges would be bad enough to confront and face on their own. Facing them all at once is going to be tough and could trigger the long-delayed managed retreat of the industry to the clean energy alternatives. 

Of course, my dream might not come true; governments may fail to codify their intentions in international law in Paris this December. I’ve witnessed enough of these negotiations over the years to acknowledge that that is a real possibility. (And I have worded the title of my book precisely: it does not read ‘How we won the carbon war’.) 

But it is clear that the Carbon War can now be won, and I urge UK businesses to acknowledge the change that is happening around them and act now to ensure their organisations remain relevant and sustainable in this rapidly-changing energy landscape.

‘The Winning of the Carbon War’ will be downloadable for free and released in a 10-part series month by month through to the last day of the Paris climate summit in December 2015. Follow the blog and download the book

Jeremy Leggett

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