THE CARBON WAR

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The Winning of The Carbon War
My inbox the next day is a thing to behold. Most e-mails are in the vein
“I hope you are right”.
Some disagree with me, including my friend Jonathon Porritt. His long
experience of trying to argue for an oil-and-gas business-model U-turn, via his
think tank Forum for Future, suggests to him that the task is futile. No major
oil-and-gas company can commit to renewables in the near future, he writes,
because their internal culture is too robustly vested: they are forced to adopt
“intricate patterns of denial and self-deception”.
I agree with him about the culture. It is dysfunctionally defensive at best,
deliberately malign at worst. But what about the market dynamics? Is the double
whammy of capex-cost-up solar-cost-down really escapable now?
If Terry had asked me to define what I meant by “near future” for the
business-model U-turn, I would have said three years.
One e-mail, from a former senior BP executive, surprises me. “That’s
some bet”, it reads, “but probably good within, say, 5 years.”
Copenhagen, 12 th –14 th January 2015
Denmark is one of the nations supporting a zero net carbon target for 2050 at
the climate negotiations. It is not too difficult to see why. Denmark generated
39% of annual electricity from wind in 2014: the fourth consecutive annual
record. Copenhagen has reduced greenhouse gas emissions 40% since 1990
with smart heating grids and other techniques. Chinese policymakers flock
to study the Danish capital’s low-emissions route to heating cities these days.
A Carbon Tracker team is in town today to try and persuade Nordic
pension funds to squeeze the fossil fuel companies harder than they are. Mark
Campanale, James Leaton and I will have board-level access over the two days.
In the first meeting, Mark focuses on oil and gas. The top 20 sell-side
analysts will tell you that all the oil and gas can be burned, he says. Ask them
why they don’t see the carbon risk, and they say its because their clients haven’t
asked about it. They have to be forced to change their assumptions and tell
clients what fair value looks like. We recommend that you tell them that the
profitability of their legacy assets will give cash for 15 years, and if they cancel
risky capex they can pay you dividends. If they do that, they are contracting
in size, but their share price will go up. We are talking about transition and
contraction versus business as usual. What you don’t want is these oil and gas
giants wasting your money in marginal projects.