New OxCARRE research: Fossil fuel producers under threat

Rick van der Ploeg writes on

Fossil fuel producers under threat

Oil and gas producers face three threats: prolonged low oil and gas prices, tightening of climate policy and a tough budget on cumulative carbon emissions, and technological innovation producing cheap substitutes for oil and gas. These threats pose real risks of putting oil and gas producers out of business. They lead to the problem of stranded assets and a significant downward valuation of oil and gas producers. This calls for divesting from and shorting coal, oil, and gas. The economies of oil- and gas-rich countries are typically in a deplorable state, since they did not use their past windfalls to build up buffers and invest in a diversified economy. More rapacious depletion of their oil and gas reserves will not help. After the crash in oil and gas prices these countries are facing serious problems and it is difficult to see how they will cope with the outlined threats.

Published in Oxford Review of Economic Policy, available here [oxrep.oxfordjournals.org].

64 Dutch professors request immediate closure of all coal powered electricity plants

64 Dutch professors in the topics of sustainability and environment write a public letter to the government and parliament [trouw.nl, in Dutch] requesting immediate closure of all coal powered electricity plants. Noting that according to a recent report of the European Environment Agency, presumably this one [eea.europa.eu], The Netherlands is among the worst performing on the targets that were set under Kyoto and EU 2020 objectives.

They argue that The Netherlands has enough spare capacity in gas powered electricity plants to shut down all coal powered plants immediately. The additional gas should be imported from Norway.

The purpose would be to 1) meet the emission targets a Dutch court has already ruled the government should abide to, 2) send a strong signal in preparation to the Paris climate talks, 3) do away with impression that a country that is among those most at risk of rising sea-levels is doing very little to prevent it.

The closing of coal powered electricity plants is a world wide pattern, with commitments from the US, UK and Germany, while China has been reducing the number of coal powered plants it is planning to build. Global investors have been pulling money out of the industry, seen as a liability.

FT's Nick Butler: The reports are false – coal burns on

Nick Butler writes on the FT website and interesting note on the future of coal.

Writing on the headlines and recent divestment campaigns,

If you have Oxford University, Michael Bloomberg and the Norwegian Sovereign Wealth Fund against you what hope can there be?

May I note an OxCARRE paper [ox.ac.uk] by Tony Venables and Paul Collier? In fact, he notes, how dominant coal still is, and likely to remain given the dependence of it in China and India.

He concludes that only a cheap renewable energy would be able to displace coal. That would imply serious energy put into science and research. Closing,

In the meantime, it would be prudent to start some serious consideration of the question of adaptation to the changes in climate that begin to look inevitable.

Shift from Coal to Gas? Not too quick please, says BHP Billiton Chief

The CEO of BHP Billiton, Andrew Mackenzie, takes issue [ft.com] with vocal natural gas producers who claim that gas should replace coal in energy production as fast as possible as a bridge to an economy based on lower CO2 emission.

I think there is a marketing ploy, which is ‘give up coal and burn more gas.’ (...) I am not against the trend, but come on — the last time I looked there was plenty of carbon in methane and there is huge amounts of carbon in oil, and the carbon emissions from transport are just as much a problem as the carbon emissions from coal-fired power stations.

Personally, I've noted especially the aggressive ad campaign of Statoil, claiming that gas is the energy of the immediate future until renewable energies can take over.

So what's his favoured solution? So he actually doesn't disagree with the shift to gas, even if it's a "marketing ploy", as long as it'll be slow. In the mean time, carbon capture and storage (CCS) should be developed. CCS is currently not a very popular strategy in the mix of CO2 reductions, partly due to costs, which may go down once further research and pilot programs are executed. The time required to develop the technology further will probably be measured in decades.

So that's where I'm not fully understanding the claim. On the one hand, coal producers state that pressure to "close coal" [oxcarre.blogspot.com] "a very western, rich country solution" [ft.com], given that it's a cheap and abundant source of energy for developing countries.
McKenzie stated in an earlier interview, “I don’t think the answer is to keep it [coal] in the ground because energy prices will just shoot up.” [ft.com]
However, if he then then argues that there should be a global carbon price and investments in one of the most expensive CO2 reducing options, then doesn't this inevitably increases the price?

The Guardian's "Keep it in the ground" campaign

As part of his final months as editor of the Guardian, Alan Rusbridger [guardian.co.uk] has started a climate campaign called "keep it in the ground" [guardian.co.uk]. In short, if we take the 2 degree Celsius limit seriously, we can still burn 575 Gigatons of carbon while the currently proven reserves of oil gas and coal contain 2795 Gigatons (see opening letter of him).

This relates to the idea of unburnable assets which we posted about last year, here  [oxcarre.blogspot.com], and of which also a related paper exist from Paul Collier and Tony Venables (Closing Coal: Economic and Moral Incentives [oxcarre.ox.ac.uk], and blog [oxcarre.blogspot.com]).

Today's Guardian frontpage has the UK Energy Secretary Ed Davies supporting [guardian.co.uk] the campaign, but this we already knew [oxcarre.blogspot.com].