Last week’s editorial concluded that it may be some time before the shift in the world’s energy mix has a profound effect on the likes of Royal Dutch Shell (RDSB), but the evidence suggests that the transition to a greener future is gathering momentum. Earlier this month, BlackRock closed its Global Renewable Power Fund II with $1.65bn (£1.26bn) in commitments from institutional investors. The final figure was well in advance of BlackRock’s initial $1bn target, perhaps vindicating the launch of the fund at a time of regulatory uncertainty ushered in by the perceived laissez faire attitude of the current US administration towards environmental regulation and its explicit support for the US coal industry.
BlackRock’s new fund taps into a wider narrative bound up with the Paris climate accord and the United Nations Framework Convention on Climate Change, which target a reduction in greenhouse gases that will limit the increase in the global average temperature to well below 2°C above pre-industrial levels. The 2017 edition of Bloomberg’s New Energy Outlook estimates that of the $10.3 trillion invested in electric power through to 2040, $7.4 trillion will be given over to renewable generation. However, the report goes on top say that an additional $5.3 trillion will be required to meet the UN target.
To put that into perspective, the Paris-based International Energy Agency estimates that total energy investment in 2016 was just over $1.7 trillion, or 2 per cent of global GDP. Last year was noteworthy in that the electricity sector edged ahead of the oil and gas sector to become the largest recipient of energy investment. That represented a global first, but oil and gas still accounted for two-fifths of overall energy supply investment.
With renewable commitments on this scale, it’s understandable why Bank of England governor Mark Carney and others have warned that investors in fossil fuel companies could be left holding a pup, because to achieve the UN climate target only roughly a fifth of the world's proven reserves of oil, gas and coal can be burnt.
There is a flip-side to this conjecture. Investors who rush into the renewables market could also be left high and dry because it’s still far from certain which forms of ‘green’ technologies are likely to prevail in the long run, a point borne out, for example, by the wide disparity in the capital costs of onshore wind energy projects across Europe. Among other factors, industry valuations are far from reliable. We would do well to remember the dot-com and housing bubbles.
A cynic – or perhaps a realist – might take the view that President Obama’s signing of the Paris accord and President Trump’s subsequent repudiation are both politically symbolic, but essentially meaningless from a practical perspective. That’s because countries have essentially signed up to loosely binding commitments to reduce greenhouse gas emissions many years from now. The language is deliberately ambiguous and the accord has no teeth from a legislative perspective: there’s no compulsion. And that’s to say nothing of the lengthy list of corporate and national opt-outs on greenhouse gas emissions. At best the Paris agreement might be described as a tentative first step.
But the excoriation that followed Trump’s decision to pull out of the Paris accord demonstrates that the political battle is essentially zero-sum, mirroring the wider climate change debate. On both sides of the argument, the position held seems more like an article of faith.
I hold no particular scientific expertise on man-made climate warming. But I would suggest that the Paris accord is quantitatively insignificant – mere political window dressing. We’re more likely to see real change on the environmental front because of the problem of growing air pollution in major cities, not only in China but in the western economies. Let’s not forget that it was this issue that drove major infrastructure and regulatory change in London, ergo the Great Stink of 1858 and the Great Fog of 1952.
Mark Robinson is the deputy companies editor
