By John Gault
Climate change demonstrators carry placards saying “Halt Global Warming,” broadly interpreted to mean “confine global warming to the Paris Agreement’s target of 1.5°C.”
Advocating such a goal helps to raise public awareness, but fails to identify specific steps to reach the goal. It is now urgent that climate campaigners advocate not just goals but pragmatic actions. Such specific actions should start with global carbon pricing and government aid for infrastructure projects that advance the spread of renewables. Part of the aim should be not to excoriate the oil and gas industry, but rather to encourage it to invest more in the transition.
Before launching their next street demonstration, campaigners might wish to pause and reflect on just what it will take for the world to avoid climate catastrophe: massive investment. The International Energy Agency recently estimated that energy-sector investment of $71 trillion will be required to achieve the needed energy transition away from fossil fuels over the period from 2019-40.
The International Renewable Energy Agency projects a need for cumulative energy-sector investment of $110 trillion from now through 2050. The required investment thus will average around $3.5 trillion per year, compared with global energy-sector investment that averaged about $2 trillion/yr in 2014-18. A significant part of the incremental investment must be in new and renewable energies.Achieving this massive acceleration in investment under present circumstances will be challenging because, according to the International Monetary Fund, global real investment has been slowing since 2017. Economic growth globally is slowing as well, and — in many countries — recent growth has been driven by consumer purchases and consumer debt, with little contribution from business or government investment.
Corporate investment in all sectors is inhibited by trade disputes and the consequential stagnation of global trade.Private-sector investors also hesitate to invest in the absence of clear, consistent government policies toward climate change. Some governments refrain from investing in infrastructure for ideological reasons, arguing that private-sector initiatives are preferable.Meanwhile, the acceleration in investment needed to propel the energy transition will not wait.
The chief economist of the OECD recently wrote: “Governments must act quickly: Without a clear sense of direction on carbon prices, standards and regulation, and without the necessary public investment, businesses will put off investment decisions, with dire consequences for growth and employment.”Thus, climate campaigners must focus their efforts on mobilizing an enormous increase in annual energy-sector outlays at a time of global investment retrenchment.
As the OECD statement implies, the most urgent target must be government policies currently inhibiting private investment.It has been tempting for climate demonstrators to focus instead on condemning the fossil fuel industry. The industry’s high visibility and presence in the community make it an easy target. But before occupying the nearest gasoline filling station or condemning cultural institutions for accepting oil industry contributions, campaigners should stop and think strategically. Would it be possible, climate advocates should ask themselves, to begin to bring the interests of the fossil fuel industry into alignment with their own goals?
The largest North American and European companies in the oil and gas industry invest, overall, approximately $300 billion annually. Additional large investments are made by state-owned and other oil and gas companies based in the Middle East, Asia, Africa and Latin America. Some of this investment — but to date only a tiny portion — has been in non-fossil energies. How can a larger share of this spending be directed toward the energy transition?
Persuading the oil and gas industry to diversify capital outlays into renewables would not only help to meet the mammoth funding requirements of the energy transition, but would also bring with it the industry’s valuable skills and experience in managing megaprojects, developing and introducing new technologies and controlling risks.Aligning Activist, Oil Industry InterestsWhat can climate campaigners do to encourage such an alignment of interests? As the statement of the OECD chief economist implies, campaigners must demand government policies that will promote investment specifically to advance the energy transition.
Demonstrators must prioritize such policies. Imprecise, generic goals (“Halt Global Warming”) enable governments to make vague promises about what will be achieved by 2050, when few of the current leaders will be around to face responsibility for failure.The oil and gas industry has already revealed how to bring their interests into line with those of climate campaigners, and how government policies could influence their investment allocations.
In 2015, major European oil and gas companies urged governments collectively to put a price on carbon emissions. This demand by the industry is far more precise than the slogans appearing on climate demonstrators’ placards. Since 2015, additional companies in the industry have joined the original group, and last week major US natural gas producers made the same plea (NGW Dec.9’19).A multilateral agreement to put a significant price on carbon — or to substantially increase such a price where carbon is already priced — should be the highest strategic goal of climate activists worldwide. A price on carbon could be implemented either though a tax or an ever-tightening cap-and-trade system.
Such a policy would need to be accompanied by direct cash subsidies to consumers with low incomes as well as those who live in areas poorly served by public transport, or who otherwise are unfairly impacted by a rising carbon price.An equally important strategic objective of climate campaigners must be to secure direct government financial participation in large infrastructure projects that advance the energy transition, such as construction of pumped-storage facilities, enlargement and modernization of electricity transmission and distribution networks, expansion of public transport systems, and similar investments.
Historically, governments have taken a lead role in major infrastructure projects, often in partnership with private investors. The massive increase in energy-sector investment needed to advance the transition is unlikely to be realized without a resumption of such government leadership.Accusing the hydrocarbon industry of investing in hydrocarbon reserves that are likely to become stranded assets may score debating points, but those assets will only be stranded if the energy transition is successful.
Strategically, climate campaigners should focus instead on mobilizing the financial resources to pay for the transition and ensuring that the cost is shared fairly.
John Gault is an independent energy economist based in Geneva.
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By John Gault