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Secretary General Ban Boosts Boom In Green Energy

Politics / Renewable Energy Apr 28, 2013 - 12:30 PM GMT

By: Andrew_McKillop

Politics

WELCOME TO THE BUBBLE
Lord Stern, chairman of the London School of Economics' Grantham Research Institute said this month that some 60%-80% of oil, gas and coal reserves and resources owned by the world's major stock exchange listed energy and natural resource firms "need to be left in the ground if the world wants to tackle climate change". To be sure, the market value of these companies could fall by that amount, or more, due to their forward investment spending being based on increasing future output and sales.


At present, the world's major energy firms are building a "carbon bubble" of worthless investment.

According to Stern, author in 2006 of the remarkably imaginative "Stern Review Report on the Economics of Climate Change", available from the UK government Treasury department at a very modest price of GBP 29.99 + GBP 3.50 postage and packing (quoting ISBN number: 0-521-70080-9), the future value of all fossil energy resources is toast.

In his latest bout of iconoclasm, Lord Stern says: “Smart investors can see that investing in companies that rely solely or heavily on constantly replenishing reserves of fossil fuels is becoming a very risky decision”, adding that his new report: “(R)aises serious questions as to the ability of the financial system to act on industry-wide long-term risk, since currently the only measure of risk is performance against industry benchmarks.”

UN Secretary General Ban Ki-Moon has been quick to follow-on and follow-up with this elite quest to renew flagging investor support to green energy. In a speech at a Bloomberg New Energy Finance conference in New York, April 26, he said: "The climate clock is ticking. The longer we delay the greater the cost. We only have one planet Earth. We have no plan B".

Ban added that in his opinion the funds flowing to renewable power and energy efficiency are "not sufficient to avert environmental calamities" and that investors must move more quickly to back new energy saving low carbon technologies.

THE DIRE THREAT OF GLOBAL WARMING
As we know, the crisis is no longer called a global warming crisis. It is now an approaching calamity of bad weather, cold weather, hot weather, unpredictable weather, wind storms, snow storms, heavy rain, dry spells or whatever interferes with the garden parties Lord Stern frequents, probably frequently.

This is bundled together and called "Climate change".

According to Bloomberg, world investment in renewable investment fell 11% to $269 billion last year, the first decline since 2009. Other analyses by banks, research institutes and brokerages, universities and independent analysts give figures ranging from around $250 - $350 billion, with major variations due to how "green energy and energy saving" is defined.

Also according to Bloomberg's sector-promoting firm, New Energy Finance, annual investment of at least $700 billion, growing to $1.8 trillion-a-year in "sustainable-energy" development will be needed by 2030 to thwart the damage expected from climate change, as global population climbs to 8 billion people by 2030. 

Ban's New York comments underscore his support to efforts to protect the environment. The UN leads the effort to bring more than 190 nations together to develop climate-saving carbon-reducing policies. Ban said that he had received a personal message from President Barack Obama assuring him that the US "will lead by example" in the quest to arrive at a binding worldwide climate agreement in 2015.

At the New York conference Ban went on to stress that "people and corporations must reduce waste" and become more efficient. He told bankers and fund managers at the conference that they must take a leaf out of Obama's book and “lead by example”. He said that he is personally doing the same.

Making it clear how dangerous is the approaching calamity, Ban told the respectful audience that he now turns lights off in his hotel room. He said:  “I have been dutifully, faithfully turning off lights in my hotel", despite that being difficult. He added: "Sometimes it’s very difficult these days, all different hotels have a very different system of lighting. Normally I stay in a suite so there are many, many lights.". Only 5 bedrooms, but Ban is trying to turn off the light!

THE RACE TO WASTE
Daniel Poneman, deputy US Energy secretary said at the Bloomberg conference that more than half of all energy consumed in the USA is wasted, and eliminating some of this waste would boost the economy. Using a now-familiar mix of jargon, Poneman claimed that spending on wasted energy was not just a question of waste. "This is not just about saving the environment,", because "These costs go right to the bottom line". Evidently for energy companies, if they sell less energy to efficiency-minded users of energy their "bottom line" of sales revenue will decline, unless unit prices are raised.

Lord Stern, in his April 2013 report examined the useless spending and vastly exaggerated market value of energy companies quoted on the London Stock Exchange (LSE). With Grantham Reearch Institute partner firm, Carbon Tracker, Stern says that shares in fossil fuel companies listed on the LSE are currently worth a nominal total amount of $538.1 billion. Yet these firms, which annually produce 113 billion tonnes of CO2, are also spending $78.7 billion a year on developing their oil, gas and coal activities. According Stern's very special brand of Climate Economics, these firms are in debt to the Sutainable Earth to the tune of $158.2 billion and this figure can only rise, in his opinion. Their real NPV, in Stern-o-nomics is roughly minus $790 billion.

The rationale is that fossil fuels are only ever going to be a short-term investment, and one that goes against the longer term trend of decarbonising the planet's energy system.

Stern says he "underestimated climate damage" in his 2006 report. He now claims that the effects of anthropogenic climate change (not global warming) "are coming through more quickly than we thought". At the Davos Forum in January 2013  he said, "Looking back I underestimated the risks. The planet and the atmosphere seem to be absorbing less carbon than we expected, and emissions are rising pretty strongly". Interestingly enough, arch-warmist James Hansen now says that unanticipated and rapid absorbption of CO2 by world biomass, which Hansen calls "biomass fertilization", has caused the unanticipated absence of global warming - for the last 10 years - that Hansen had so tirelessly promoted as a coming and certain global calamity.

Stern is unfazed by such trifling realworld details. Presenting his latest report, he said: “This is potentially so dangerous that we have to act strongly”. He now says that that the "massive overspending" by fossil fuel companies could lead to a major new financial crisis, unless these companies take swift action to mitigate the risk of what he calls "the carbon bubble".

THE CARBON BUBBLE
This can explained in Stern-o-nomics as follows. The world's top 200 oil, gas and coalmining companies spent $674 billion in 2012, according to Stern's partner research groups, finding and developing fossil fuel resources. These carbon-intensive businesses could see $6 trillion of wasted corporate funds, when policies sharply limiting global warming (Stern means climate change) "stop them from exploiting their coal, oil and gas reserves". In other words they will be insolvent.

On advice from Stern, the Bank of England said from 2012 it maintains a watch on whether the UK"s "exposure to investments in polluting industries" poses a risk to national financial stability, this probe being supported by a group of more than 20 major investor entities. The fear is that the longer companies continue to invest in "the carbon bubble" and carry on regardless, the bigger the bubble will get".

Stern's new report claims that up to 80% of the fossil energy reserves of the top 200 public companies studied would be "unburnable" if the world plan mentioned by Ban Ki-Moon to curb emissions, to limit global warming to 2 degrees Celsius by about 2050, is approved in 2015. Corporate debt and bonds of the fossil fuel companies could be vulnerable to ratings downgrades, pushing up their financing costs while equity valuations could plunge by 60% or more as industries and society become less carbon-intensive, citing financial performance analyses made for Stern by HSBC Holdings Plc.

The report calls on world finance ministers to incorporate climate change into assessment of risk in the capital markets and urges financial regulators to require companies to report CO2 emissions "embedded in their corporate fossil fuel reserves". Ratings agencies must address climate change as part of the global effort to tackle financial risk, the report says.

Likely something of bowing-out tirade, Stern is of course always good value. His 2006 climate economics report is available for almost nothing, from the UK Treasury. We could expect, and certainly hope the latest Stern-o-nomics report will be worth even less, even faster.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2013 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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