Lima leaves Australia, Big Oil, with giant fossil fuel headache

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The Australian government and big oil companies like ExxonMobil found they had a lot in common this past week. Both went to the Lima climate talks convinced that the demand for their fossil fuels will never waiver. Both now see political and economic shifts against their rusted on business models.

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The Australian government and big oil companies like ExxonMobil found they had a lot in common this past week. Both went to the Lima climate talks convinced that the demand for their fossil fuels will never waiver. Both will leave with their confidence challenged.

The Lima climate talks ended – at about 3am on Sunday after running more than a day overtime – pretty much as expected: laying the groundwork for a new climate deal to be sealed in Paris, even if it didn’t remove any of the major road-humps.

Those road-humps will be gradually eliminated and managed in what will seem like an endless succession of mini-summits, bilateral meetings, and organized climate talks through 2015, ensuring that climate remains at the forefront of the political and economic agenda.

It is true that no one really expects Paris to be the big bang event that solves climate change. It will not have binding targets on all countries, and even UNFCCC executive secretary Christiana Figueres admits it will unlikely secure sufficient commitments to effectively cap global warming to less than 2C.

Those “top up” commitments will have to come in subsequent years. But what Paris will provide is a clear investment signal to move to clean energy and a decarbonised economy, and a clear signal that continued investment in fossil fuels is a high risk game.

Not much of any consequence got cut out in the Lima negotiations, and one of the key planks of a Paris agreement remains in place – the complete phasing out of fossil fuels by 2050. And – much to the horror of foreign minister Julie Bishop – it had the explicit support of more than 100 countries.

That fact that fossil fuels is now an incredibly high risk industry has already been made clear by the financial markets. The world’s stock exchanges have been struggling in recent weeks in the face of a plunge in oil prices to five-year lows.

Much of the world’s fossil fuel reserves – oil and coal – cannot now be economically extracted and delivered to customers at current market prices. Much of the analysis has focused on the short term causes of that – a refusal to turn off supply from the Saudis (who can still make a profit at such prices).

But not much is being said about the longer term impacts. The fossil fuel industry has for decades relied on uninterrupted capital flows. But those capital flows are now being re-assessed – both because the risk/reward investment in new resources is becoming unacceptable, and because competing technologies – wind and solar – are now cheaper and better bets in many parts of the world.

This is the great dilemma for the Abbott government. As global investment bank HSBC pointed out last week, exports are equivalent to 20 per cent of Australia’s economy and energy exports were 28 per cent of Australia’s total exports in 2012-13. We are now seeing the impact of a big fall in iron ore prices on Australia’s balance of payments, and its budget.

HSBC economist Zoe Knight wrote that Australia tried showcase its climate credentials at Lima (hijacking $200m in climate funds from the foreign aid budget and talking up Direct Action), but its efforts belied the fact that the Australian economy would still be vulnerable to policies set in the rest of the world – a “carbon isolation” made more acute by its repeal of the carbon price.

carbon budget ubsAnother leading investment bank, UBS, used its analysis of the Lima talks to repeat the “carbon budget” (see graph) that underlines the point that financial analysts also see the decarbonisation of global and individual economies as a major factor in deciding where capital will flow.

Erwin Jackson, the deputy CEO of The Climate Institute, said Australia will be under intense pressure to deliver a meaningful reduction target next year – as even countries such as Ethiopia and Mexico, as well China and India, make their commitments (for the first time from developing nations –this is a major development of Lima).

“All countries have to justify how they think it will fit in with the 2C target,” Jackson told ABC Radio National. “Countries cannot backslide.”

Australia is already facing difficulty because new analysis shows that – thanks to some creative accounting procedures – it will in fact be lifting industrial and energy emissions by between 26 per cent and 50 per cent by 2020 (from 1990).

Now, without any more sleight of hand on land use available to it, Australia must reverse that growth, and quickly. Backsliding, though, is exactly what Australia has locked itself into. It has dumped the carbon price – already provoking an increase in emissions – is trying to slash the renewable energy target, and has sought the abolition of a range of instiution.

“We’re heading on a trajectory where the world does not us traditional fossil fuels any more,” Jackson said. He said Australia needs to take broader view of its interests, beyond those of the Tony Abbott task force – like its review of the renewable energy target – is looking only to protect a narrow set of industries.

“The posture of the government at the moment appears to seek to minimise the imagined threats to major polluting businesses. This is blocking it from seeking economic opportunities in renewable energy and climate solutions that could maximise its influence in climate negotiations as we head to Paris next year.

“Lima has taken a broader view. This is an opportunity for the government to lift its head about short term sectoral interests … how do we prosper in a world moving towards climate change.” Rather than closing down access to carbon markets, and “knee capping” schemes lik the RET, it needs to be doing the opposite.

Jennifer Morgan, the global director of the Climate Program, at the influential Washington-based World Resources Institute, said the “most inspiring development” in Lima was an outpouring of support for a long-term effort to reduce emissions.

“Over a hundred countries now advocate for a long-term mitigation goal. This would send a strong signal that the low-carbon economy is inevitable,” she said.

A few politicians have seized on what this means.

Said former Mexico president Felipe Calderon, now chair of the Global Commission on the Economy and Climate: “This week in Lima we have made progress towards an international agreement that will send a clear signal to businesses and investors. There is still considerable work to be done. But I am encouraged that countries, all around the world are beginning to see that it is in their economic interest to take action now.”

And, of course, Australian Greens leader Christine Milne: “Phasing out fossil fuels will be the global conversation in 2015 whether Tony Abbott and Julie Bishop like it or not,” she said in a statement.

“Less than 2 degrees’ is not one of Prime Minister Abbott’s slogans. Nor is a commitment to a long term goal of decarbonising the planet by 2050. But that is what the world will be negotiating in 2015.

“Julie Bishop let the cat out of the bag when she said, “How could one possibly commit to having fossil fuel free world by 2050?” Readily Minister, if we care about the climate.

“Australia needs to phase out fossil fuels and move to 100% renewable energy for the climate and for our economy. The writing is on the wall for big coal, for the Galilee and Bowen basins and coal ports and railways. They will be stranded assets.”

The difference now is that this cannot be readily dismissed as a left-wing, enviro-fantasy. It is now part of not just mainstream political thinking (beyond the shores of Australia), but also mainstream financial analysis. And that’s what will count in the end.

But that is yet to sheet home to the Abbott government, with the possible exception of Bishop. Alhough this is not yet clear. Said Oxfam: “Australia attended the talks and that’s about the best thing you can say about their role in the process.”

 

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14 Comments
  1. john 5 years ago

    I do not think we will do anything about this.
    Yes we should but No will not.
    Please write you’re story for your grandkids and explain just what you did.
    What we should be doing.
    Using EV for personal transport.
    Using every possible RE method of generation for power.
    Reducing as quickly as possible the use of ICE personal transport.
    In the personal domain, insolate, use energy efficient appliances, get rid of that plasma asap.
    Buy natural fibre fabrics buy local as much as you can.
    Walk don’t use the car.
    A tiny bit by 10 million people can add up and if everyone; as in world wide; does the same as you imagine the overall effect.

    • sean 5 years ago

      or just use more PV and watch the economics for fossil fuels drop.

      why would you pay more to use coal?

      • Peter 5 years ago

        I wonder how long it will take for the ‘far right’ to grasp this ‘novel concept’? Rather ironic when they are all about the ‘free market’.

  2. Alan Baird 5 years ago

    Just when Anthony Abbott was suffering an increasing sense of “relevance deprivation syndrome” after more Joe Hockey downers, more appalling scenes between Peta and Cabinet and Julia stamping her Size 12 and going (dammit!) to Lima, along comes a jihadi to the rescue and allows him to bestride Martin Place like a colossus while simultaneously calling a meeting of all security-minded folk, no mean feat, especially with Mike Baird hanging around, cluttering things up. I always said George (WB) needed Osama (and vice-versa) for continuing support of relevant constituencies. ‘Taint no different in Oz. As Monty Python would sing, (join in) “Always be rude to an Arab…” Sorry, I’ll read that again…

  3. Vic 5 years ago

    Does OPEC have enough oil reserves to blow the entire global carbon budget all by itself ?
    Would a coal fired power plant produce less CO2 if it was converted to run on oil ?

    • Peter Campbell 5 years ago

      “Would a coal fired power plant produce less CO2 if it was converted to run on oil ?”
      Not by much. If running on methane, CH4/natural gas, produces about 40% less CO2 than coal (mostly carbon) then oil, longer chain hydrocarbons than methane, (CH3-CH2-CH2-etc-CH3) would be intermediate.

      • Vic 5 years ago

        Thanks Peter.
        I’ve just been wondering how far OPEC might go. If they’re prepared to wear lower oil prices in order to knock out tar sands and shale oil competition, what’s to stop them sending prices even lower to knock out a lot of coal as well, in this era of a rapidly diminishing global carbon budget ?

        • Craig_Hubley 5 years ago

          They could, and Mideast producers could even make a deal with greens worldwide to drop the prices lower if the consumption is taxed high enough and the R&D money spent on advances of use to desert countries. Such as solar thermal plants, which those countries are ideal for.

          The exit strategy for fossil fuels is obvious at least for Libya, Tunisia, Saudi Arabia, Iraq and Gulf states, even Australia: Get ahead of the solar curve and generate both electricity and algae ethanol in vats. Maybe convert CO2 to CH4 too and liquefy it. These countries have better solar than fossil prospects long term. Others, like Canada or Russia, have better wind and hydro potential, and some geothermal.

  4. michael 5 years ago

    interesting how the FF analysis has changed from price risk and it’s just too expensive to use, to now the price is low due to nobody using it… which is it, peak oil and too high costs to be competitive or too low priced and no exploration?
    if exploration drops and supply constricts, won’t prices rise? or if they don’t rise, it will make FF more cost competitive against RE. So then I guess you would propose as high a tax on it as possible to construct a false price signal to make it expensive.
    lovely flourish of the pen with the comment attributed to government and FF industry that demand will NEVER waiver, I think the commentary has been that it will be strong for decades to come, as if anyone believes demand for FF won’t have dropped in the next 100 years… good one. Is this reporting or politicking?

    • Craig_Hubley 5 years ago

      A recognition of liability is not “a false price signal”, any more than requiring insurance on certain activities creates “a false price signal”. Only criminals – who expect to dump all liability on others and do not pay for their inputs or externalized risks at all – would employ your sociopathic version of logic.

      Let’s see what happens to your “demand” when climate victim nations are regularly sinking coal ships, other climate victim countries are refusing to allow even investigations of this, no sea port in the world (all at sea level, remember) will accept a coal or Tar Sand or fracked gas ship, and people who think and talk about real ecocide and genocide risks in terms of “supply and demand” like criminal sociopaths are being regularly killed with no witnesses. Or at least, none that will talk.

      Don’t think so? What happens to other banned substances with high demand? Don’t drug dealers and nuclear materials dealers regularly just disappear? Don’t their goods get confiscated? Doesn’t the military-industrial and -intelligence complex just take them for their own uses? Why would this not be the same for fossil fuels in 50 years? Or even in 35?

      Energy richness has nothing to do with it. Uranium and plutonium have very high energy content, and very great strategic military blackmail value, but if you try to deal in those, you will be subject to the brutal and arbitrary assassinations and secret cabals that deal in drugs and in war. It will be no different for dirty fuels.

      • michael 5 years ago

        this is a great read.

        care to suggest who this “victim nation” is and who’s coal ship it will sink?

        I can’t think of a nation which does not export or use FF which also has the fire power to actually achieve that, so will be very interested in who you put forward.

  5. Alen T 5 years ago

    The outcome in Lima, specifically the idea of phasing out fossil fuels, will (ideally) be more of a disaster for C. Newman than for Abbott. His plan of throwing taxpayer money down the drain, also known as building a rail link to the Galilee basin, just hit another major roadblock. I’d suggest for him to contact and listen to Tim Buckley for a change, that fellow might just after all know what he’s talking about.

  6. coomadoug 5 years ago

    I think without doubt a green economy shift is a major boom waiting for us to adopt. Perhaps we can best describe the stupidity of the fossil fuel dream by ignoring it and describing the alternative opportunity.

    There are fundamental differences in economics today. Economic growth will not require resource consumption and burning dangerous products. Money doesn’t need a coal industry.

  7. Craig_Hubley 5 years ago

    Abbott and Stephen Harper are criminals who belong in the World Court for ecocide and attempted genocide. Along with Dick Cheney, for both torture and fracking, and oh wait starting wars with lies. The Bush and Koch family belong with them.

    Allying oneself with this kind of garbage is like allying yourself with Nazis in 1944.

    It’s likely to destroy you.

    Run, not walk, away from the dirty fossil dealers, who are also not coincidentally torturers and war criminals. Every penny you leave in their hands will be lost.

    ExxonMobil, Shell, TransCanada, Enbridge and of course Koch are basically all pure plays in genocide and ecocide now. For them to win, life on Earth has to lose.

    Choose your side carefully.

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