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Paris deal: Great for wind and solar, and a $46 trillion hit to fossil fuels

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The fossil fuel industry is facing a $US33 trillion ($A45.8 trillion) hit to its expected revenues over the next 20 years, following the dramatic and unexpected result of the Paris climate change conference last weekend.

oilEnergy analysts from the UK-based investment bank Barclays said the Paris deal, which aims to cap global warming well below 2°C, with an aspirational target of 1.5°C, will result in a boost to renewable energy, and will cause a rethink from investors about new investments in fossil fuel sources.

Lead analyst Mark Lewis says the implications for the fossil fuel industry are profound, and will likely cause it to suffer a loss in revenue of around $US33 trillion out to 2040 over business as usual.

Most of this will be felt in the oil sector ($US22 trillion), but also in the gas ($US6.1 trillion) and the coal sectors ($US5.7 trillion). The impact is felt mostly from investments that won’t go ahead as a result of the renewed push to decarbonise the world’s energy system, rather than from existing assets.

The findings of Lewis, and other leading financial analysts, contrast sharply with those within Australia’s Coalition government, some of whom dismissed the Paris Agreement as likely to have no effect on the fossil fuel economy.

Liberal MP Craig Kelly poked fun of the deal in a Facebook post quoting climate contrarian Bjorn Lomborg, a favourite of both foreign minister Julie Bishop and environment minister Greg Hunt. Dennis Jensen, who wanted to be science minister but is a climate denier, described the agreement as meaningless.

This may be the thinking in certain parts of the political mainstream in Australia, particularly on the conservative side, but it is completely out of step with what is going on in the rest of the world.

Barclay’s Lewis says the Paris deal will combine with greater investment caution, and new standards and requirements introduced by the Bank of England, that will seek to avoid over-investment in what appear to be stranded assets.

‘The upshot of the Paris Agreement will be a tightening of climate policy over time that should speed up the deployment of renewable and other zero and low-carbon energy sources and thereby accelerate the transition to a low-carbon global energy system that is already underway in any case,” Lewis says in the report.

“The message from our analysis for fossil-fuel companies is that they will need to be increasingly cautious regarding future investments in high-cost, high-carbon projects, as these are the ones most vulnerable to future stranding under any future policy tightening of the carbon constraint.

“Moreover, given the sheer size of the numbers we are talking about here, it would not require a policy outcome in future climate negotiations to be fully in line with a 2°C world for the appropriate investment profile for fossil-fuel companies to change significantly.”

Indeed, Lewis says even if – after the next stocktake, review and new pledges are concluded and received by 2020 – the world is still heading on a trajectory short of 2°C, it would still “significantly lower fossil-fuel investments and much higher clean-energy investments” than the trajectory the world is on at the moment.

Lewis noted that one of the main reasons why a political deal at COP21 in Paris was possible in the first place was because the costs for different renewable energy technologies had fallen so much since the Copenhagen COP, in 2009.

“With the Paris Agreement now committing the Parties to a more ambitious long-term temperature objective than ever before, and to five-year reviews of their INDCs (country pledges) as a way of getting on track to meet that long-term objective, the ground has been laid for an ongoing tightening of climate policies globally over the next few decades.”

Lewis took particular note of the decision by The Financial Stability Board – the global body established by the G20 group of nations after the global financial crisis of 2008-09 to improve international financial regulation – to establish a Task Force for Climate-Related Financial Disclosure (TCFD) to be chaired by the former mayor of New York City, Michael Bloomberg.



The aim is to develop a consistent global reporting standard for companies on the climate-related risks they are exposed to, and give financiers s the information they need to allocate capital as efficiently as possible.

“We think this will lead to increased pressure on companies to monitor and disclose their carbon risks, and to greater awareness of and attention to the carbon intensity of different companies on the part of investors.”

And he noted, there is considerable investor momentum on the climate risks of listed companies, which will be further reinforced by the Paris Agreement.  

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  • Peter

    As the coal industry feels ever more under threat I think they will
    increasing pour financial resources into their lobbying efforts. I’ve no doubt that
    where coal mines are shut down earlier than their planned economic lives
    the coal industry will want taxpayers to foot the bill.
    Hopefully governments will see the writing on the wall will resist these attempts.

    • michael

      basically a reverse RET?

  • Rob G

    We hear a lot of that typical talk from this government about “economic risks” and why we should keep coal going as long as possible…etc…etc. But in reality the “hanging on” to hope in coal (and other FFs) is just economically reckless, why haven’t they been called out on this? Is mainstream media that ignorant? And what of Josh Fredenberg’s plan to build a 500 million dollar rail line from sea to coal mine?

    Will we look back at this time and see our governments love of coal & gas was our economic downfall? They appear to asleep at the wheel…

  • Len Heggarty

    Oil will still be around slipping and slopping its pollution around as it burns its power and gives off its fumes into the atmosphere as there is a lot of money invested into the four-stroke motor that powers every automobile that is mobile.

    • lin

      Perhaps our government could rebuild our dying automotive industry around new electric vehicles? We spent billions unsuccessfully subsidizing them to produce FF vehicles. Small, cheap to run electric commuter vehicles may be something we can make that people would want to buy, particularly if the ownership and running costs were competitive, and at least some of these are under direct government control.

      • solarguy

        Running costs of EV’s is far cheaper than petrol cars although the purchase cost definitely needs to become more competitive.

    • Chris Drongers

      Did you see that bit in the Paris output where Australia has undertaken to match European transport CO2 standards by (I think) 2025? What will Europe’s standard be then? Very close to zero so that the cheapest way of matching it by a mile will be electric cars. Ten years from now fuel stations will be going the way of video disc stores – firstly the local bowser will disappear (happening), soon only a few larger ones on main arterial roads and highways will survive. Feel like driving to the local intermodal cargo exchange to fuel up each week or just plug in (by robot very soon so park and walk away) at home each night? As always, the poor at the bottom of the economy will be last able to change and will have to carry the greatest cost of driving outdated, poorly supported technology.

      • solarguy

        Good insight Chris!

  • Math Geurts

    For Australia it is rather easy. Just stop exporting coal.

    • Ken Dyer

      And burning it

      • Math Geurts

        In 2013: 430.9 million tonnes of coal were mined, and 375.1 million tonnes were exported. Apparently, “only” 55,8 million tonnes were burned.

  • John Saint-Smith

    The plight of coal miners is not limited to the likes of Clive Palmer and Gina Reinhart. Thousands of ordinary workers will lose their jobs, communities will be disrupted, families will be torn apart, and superannuants will lose their life savings. The threat of destroying $trillions in profits will unleash a huge back-lash from many quarters. We should consider the possibility of a compensation package.
    When the US Southern States Confederacy was faced the abolition of slavery, they stood to lose the equivalent of $16 trillion and the whole basis of their economy. Instead of a negotiated settlement, the 5 million whites in the South chose to go into battle against the 10 million in the Union, backed by a much more advanced industrial economy. Their ultimate failure was almost inevitable, but they saw that they had no future, so they chose to fight to the death.
    The US is still paying the price of that decision 150 years later. We should consider the possibility of a compensation package.

    • juxx0r

      You should consider fighting to the death.

      • John Saint-Smith

        After you.

    • Chris Drongers

      One economic argument is that slavery in the South was dying until just before the civil war. Unfortunately, the argument goes, a slave invented the mechanical cotton gin and made slave-operated plantations profitable again. The reprieve did not change the underlying dynamic that a) free labour was more productive than slaves and b) that mechanisation/industrialization would continue to drive down the profitability of agriculture as food/fibre got cheaper and the manufactured gizmos captured the spending power.
      14000 or 40000 coal jobs in Australia is almost a blip in the statistics. The sooner Australians learn, at all levels from the lowest worker to the financing bankers and entrepaneurial company founders, that there is more money turning electricity into products than in producing electricity the better.
      Unfortunately, the next step in the agriculture –> mining –> service/design economy means that you will fail without an extensive formal education (hard brain work) rather than picking it up sitting beside dad in the ute or buying a diploma from a poorly regulated private ‘college’.

  • Bob Fearn

    $46 Trillion?? It is not possible to make these forecasts. Telling us how many trillions the fossil fuel gangs will not get is delusional.