Energy companies are making a ‘strategic mistake’ by thinking they are immune to climate policy, says IEA chief economist Fatih Birol.
The world’s fossil fuel companies risk wasting billions of dollars of investment by not taking global action to fight climate change seriously, according to the chief economist of the International Energy Agency (IEA).
Fatih Birol, who will take the top job at the IEA in September and is one of the world’s most influential voices on energy, warned that companies making this mistake would also miss out on investment opportunities in clean energy.
Coal giant Peabody recently dismissed global warming as “an environmental crisis predicted by flawed computer models”, while another major coal producer Glencore Xstrata said governments would fail to implement measures to cut carbon emissions, as has oil and gas major ExxonMobil.
Birol, speaking at a major climate science conference in Paris ahead of a crunch U.N. summit in the city in December, said: “We see some moves from energy companies in the direction of sustainable development. However, it is not at the level you would like to see. If they think that their businesses are immune to the impacts of climate policy, they are making a strategic mistake.”
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“Any energy company in the world, whatever they do — oil, gas, renewables, efficiency, coal – climate policies will impact their business,” said Birol. “So in order not to make the wrong investment decisions, in terms of making the investment decisions which may not bring the right returns, or in terms of missing investment opportunities, businesses may need to take climate policies and the impact for their businesses more seriously. Without solving the carbon [emissions] in the energy sector, we have no chance to solve the climate change problem.”
The World Bank and Bank of England have already warned of the serious risk climate action poses to trillions of dollars of fossil fuel investments and the G20 is investigating the risks. The think-tank Carbon Tracker has estimated that over $1 trillion (£0.6 trillion) of oil investments and $280 billion of gas investments would be left uneconomic if the world’s governments succeed in their pledge to limit global warming to 2C.
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Birol said there was some cause for optimism in tackling climate change, with increasing renewables, energy efficiency and action in China helping to curb emissions. But Professor Ottmar Edenhofer, chief economist at the Potsdam Institute for Climate Impact Research, said: “Emissions are rising and rising and rising, with an increasing growth rate over the last decade.”
Edenhofer warned of a “global coal renaissance,” particularly in fast-growing poor nations. He said six of the 10 fastest growing carbon emitters are from sub-saharan Africa, led by Congo, Benin and Angola. He said that, even if technology to capture and store carbon on a large scale is developed, two-thirds of all coal resources and a third of all oil and gas would have to be kept in the ground to limit climate change to 2C. Without carbon capture and storage, 90 percent of coal and two-thirds of oil and gas would have to remain buried.
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Edenhofer said this would not happen without a global price being put on carbon pollution. “As a Catholic, I believe in miracles, but I do not rely on them,” he said. “We need carbon prices to reflect the most limited resource of the 21st century – the limited disposal space for CO2 in the atmosphere.”
He said national leaders often saw taxing carbon as “political suicide” but he argued that they needed to recognize the positive impact the revenues generated by carbon taxes could have. “Even just removing fossil fuel subsidies would allow us to provide universal access to clean water and electricity in parts of the world,” he said.