It is no secret that the fossil fuel industry has been raking in handsome profits in recent years. A new report from the European broking house Kelper Chevreux, however, shows that the industry could face a financial downturn if world governments take action on climate change.
Over the past decade, the five largest oil companies have earned over $US 1 trillion in profits, while also reaping the benefits of billions of dollars of government subsidies. And while it seems unlikely that subsidies will be scaled back any time soon—at least in the US—binding emissions targets and other moves to slow global warming could make a big dent in the bottom lines of companies like Shell and ExxonMobil.
If fossil fuel profits do indeed plummet, investors could also face a ‘carbon bubble,’ as fossil fuel reserves that are now expected to be extracted are instead left in the ground to avoid unleashing the worst effects of climate change.
The Kepler Chevreux report, led by Paris-based analyst Mark Lewis, a former head of Deutsche Bank’s carbon and energy team, says the oil industry has most to lose, with the potential loss of $US 19.3 trillion in revenues from 2015 to 2035. The coal industry stands to lose $US 4.9 trillion, while the gas industry $US 4 trillion.
The latter two markets have particular implications for Australia, which is among the world’s largest exporters of LNG and thermal coal.
The most at risk projects are the high cost, high carbon sources—particularly deepwater drilling, oil-sands and shale-oil plays—which rely on high prices for oil.
Kepler Chevreux arrives at its primary conclusions by comparing the forecasts included in the International Energy Agency’s “New Policies Scenario,” which is effectively business as usual, and what would be needed to meet the 450 Scenario, the parts per million level seen as a benchmark for capping global warming to a maximum 2°C.
But Kepler Chevreux says that its predictions do not rely on there being a global climate agreement struck in Paris at the end of 2015. It says trillions of dollars are still at risk from unilateral and regional action, pollution controls such as those being implemented by China, and the falling of cost of renewables, which will likely displace more coal, gas and oil production.
Read more: RenewEconomy>>