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  February 6, 2018

Exxon Tells Investors Not to Worry About Climate Change, But Should They?


Exxon released a climate impact analysis that says global policies to combat climate change pose "little risk" to its investments. But the attitude of investors toward climate risk is rapidly changing as fossil fuels lose their monopoly over energy generation, says Carbon Tracker CEO Anthony Hobley
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biography

Anthony Hobley is the CEO of London-based think tank Carbon Tracker. Carbon Tracker carries out in-depth analysis on the impact of the energy transition on capital markets. Anthony has been CEO since 2014, before this he was a Partner and Global Head of the Sustainability & Climate Finance Practice at global law firm Norton Rose Fulbright.


transcript

D. LASCARIS: This is Dimitri Lascaris reporting for the Real News Network from Montreal, Canada.

Last year, major Exxon shareholders BlackRock and Vanguard backed a proposal requiring Exxon to provide analysis of how climate policies will impact its bottom line in an increasingly warming world. Now ExxonMobil has issued a climate impact analysis for investors.

According to the company's report, "2018 Energy and Carbon Summary on Positioning for Lower Carbon Energy Future," world demand for oil could dip substantially by 2040 if policies to curb warming are aggressively implemented. So, is a transformation afoot in the world of finance? Is the market becoming increasingly concerned about the overvaluation of fossil fuel assets?

With us to discuss this, I am very pleased to be joined today by Anthony Hobley. Anthony is the CEO of London-based think tank Carbon Tracker. Carbon Tracker carries out in-depth analysis on the impact of the energy transition on capital markets, and before joining Carbon Tracker, Anthony was a partner and global head of the sustainability and climate finance practice at the law firm of Norton Rose Fulbright.

Thank you very much for joining us again, Anthony.

ANTHONY HOBLEY: Oh, it's a pleasure. It's great to be here.

D. LASCARIS: The last time I interviewed you, Anthony, I believe was when we attended the UN Climate Conference COP 22 in Morocco in 2016. In your view, has the attitude of investors toward climate risk changed much since COP 22, and in particular are investors showing much greater concern about climate risk disclosure?

ANTHONY HOBLEY: Oh, it certainly has. There's real momentum behind this now. It started obviously with the work that we did. That's been picked up by people such as Mark Carney, the governor of the Bank of England, also Chair of the G20's Financial Stability Board.

A game changer was the creation of the task force of climate-related disclosure, and also today or this week the publication EU's High Level [Expert] Group on climate, the HLEG. I think that's great in itself, but the fact that major financial institutions are getting behind this, such as BlackRock, who'd recently written to many of the companies they own or manage shares in. The decision of the biggest sovereign world fund in the world, the Norwegian Sovereign World Fund, to consider whether it drops all oil and gas stocks is already withdrawn from most coal-related stocks.

We see real signals, real winds of change, and this disclosure is not the normal sort of environmental disclosure. It is really disclosure that has a hard financial edge to it, trying to understand the financial risks of a business as usual pathway, and I think it's no longer in the minds of investors just about the policy and action of government. It's also a recognition that we're in a technology-driven low-carbon transition, and that in itself can be highly disruptive.

D. LASCARIS: Well, let's talk in particular about Exxon's most recent disclosure. It paints, I think it's fair to say, a mostly rosy future for the oil and gas industry, saying that even aggressive climate policy poses little risk to the company. However, the report does not address, for example, the multiple lawsuits facing Exxon and other fossil fuel giants. Do you think that this is a realistic analysis of the future and the risk that arises from climate policy, and in particular do you think that appropriate account is being taken by Exxon of the risks of climate-related litigation?

ANTHONY HOBLEY: Well, there's a couple of questions buried in there. My flippant answer would be yes and no.

Yes, because, I think like most of the fossil fuel companies, there is now an acceptance of the concept of demand destruction, the fact that there will not be ever-growing demand for their products and the acceptance that there will come a time when there will be peak demand. We used to talk about peak supply, but actually I think what's more realistic now is peak demand. As we know, fossil fuels have now lost their monopoly in energy generation. They're facing competition from ever more efficient and cheaper alternative technologies. And that's each in a way a demand for their products, as is a drive towards energy efficiency and even digital disruption.

We've seen digital disruption in the media. We will see it in our politics. We're seeing it in the realms of photography. We're actually now seeing digital disruption in the energy sector. And there is this recognition. But I think where the blue water exists between us and the likes of Exxon is how quickly we arrive at that point of peak demand.

We did some modeling with Imperial College here in London in our report around the disruptive power of new technologies. We felt, even with relatively weak climate policy -- and we looked at different [levels], weak, medium level, and strong climate policy -- there is still massive amounts of disruption from the emerging technologies of wind, solar, battery storage, electric vehicles that the companies have to respond to.

If the companies respond and accept that this is happening and they need to go X growth and recalibrate their business models accordingly, they can actually create a lot of value as part of the transition. But if they deny that or get that wrong, and continue to expand and develop resources we simply don't need, they can destroy a lot of value as many U.S.-listed coal stocks have done over the last five or six years.

D. LASCARIS: Let's talk about another technology, one that Exxon's analysis seems to place a great deal of stock in, and that is carbon capture technologies. Do you think it's a reasonable assumption that those are going to develop quickly enough and effectively enough in order to preserve or prolong the viability, the sustained ability of fossil fuels as a major source of energy for the world? What do you think the current state of that technology really entitles us to expect about the future?

ANTHONY HOBLEY: Very little the energy sector. It is a massive red herring, and what is frustrating is the way that many companies use that to imply that there is a magic bullet. There isn't. Even if we develop carbon capture and storage, CCS, at the levels predicted in some of the more optimistic scenarios from the IEA, the International Energy Authority, that is still only around 14 percent of the overall carbon budget. Buys you about 14 years breathing space. It is not a panacea or a solution.

That idealized scenario looks at several thousand commercially operating CCS facilities by 2050. That would mean several hundred a year being built, opened, and operated between now and 2050. How many commercial operations, CCS facilities do we have at the moment? We have a number of pilots but no one has actually got a single facility to the commercial stage in a commercially operated plan. It is certainly not too late for coal, and it doesn't really hold out much hope for gas.

What's also I think very dangerous about CCS consuming all of the oxygen in this debate is under every scenario, two degrees, one and a half degrees, et cetera, we do need negative emissions. No one I think is arguing about that. The debate around CCS is stopping us having a debate about where we get and where we can most effectively get those negative emissions from. For example, investment in land use, land use change, and forestry and avoided deforestation and REDD+ for example.

D. LASCARIS: All right.

D. LASCARIS: We have wonderful technology provided by nature for negative emissions as you have indicated.

ANTHONY HOBLEY: Yes, which is been millions if not billions of years in the making. Also, humans have developed commercial structures and regulatory structures to develop those, and it's called REDD+ and there's a very robust regulatory regime around that. Per ton of carbon captured, it's significantly cheaper than CCS, but I guess for many people it's not a big sexy engineering project, and that's quite often what seems to count against it even though that doesn't make logical sense.

D. LASCARIS: Right. In responding to my last question, you mentioned the state of the coal industry briefly. Donald Trump, as I'm sure you know, campaigned on a promise to bring back coal. Globally, is there any evidence that in fact coal is making a comeback after the election of Donald Trump?

ANTHONY HOBLEY: No. It'll probably slow down or make the death of coal even more painful and elongated, but it's not gonna stop it.

We've done two recent coal reports. One looking at coal-fired generation in the United States at No Place for Coal Gen, and we did one in Europe, Night of the Walking Lignite or something. Both of those reports we show that the majority of coal-fired generation is having to operate at a loss and effectively subsidize.

The United States, 78% coal-fired generation is now having to be subsidized by the U.S. rate payers to compete with clean alternatives. U.S. energy users are paying effectively a subsidy through their energy bills to keep that coal going, and of course they get additional benefits like pollution and climate change and so forth for that subsidy. That could be 10 billion a year by 2020. In some U.S. states, that could be 10% of the energy bill.

It's not quite as bad for coal in Europe at the moment because unlike ... We have very liberalized markets. In the U.S. it's very regulated. But it's about 59% of European coal-fired generation, is operating at a loss and the rest probably will be at a loss by 2030 2040. And there's marginal at best. It's quite an interesting paradigm shift, 'cause for many years in my career, arguing about renewables, they were taught that it was [inaudible 00:11:24] renewables only works if it's subsidized. But we've reached a point in many cases where coal only works if it's subsidized.

D. LASCARIS: Well, this has been part one of our discussion with Anthony Hobley, CEO of Carbon Tracker. In part two, Anthony, we would like to discuss how the insurance industry is coping with the ever-growing risk of climate disaster. Thank you for joining us today, Anthony.

ANTHONY HOBLEY: You're welcome.

D. LASCARIS: This is Dimitri Lascaris for the Real News Network.



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