Turning Point

Giving Up on Coal

Source: dpa Picture-Alliance / Horst Ossinger
The market is having an effect on the fossil fuel industry.
  • Why it matters

    Why it matters

    As politicians focus more attention to preventing climate change, the financial industry appears to be following suit.

  • Facts

    Facts

    • The U.N. Climate Change conference is taking place this year from Nov. 30 – Dec. 11.
    • World leaders are trying to reach a universal, binding agreement to limit greenhouse gas emissions.
    • Scientists say that without such measures, climate change will have catastrophic environmental consequences.
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    Audio

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International climate politics has reached a turning point, French president François Hollande said at the opening of the United Nations Climate Change Conference in Paris on Monday.

In his upbeat statement, Mr. Hollande spoke of hopes that political leaders would come to a binding agreement on climate change. But there may be a different kind of turning point taking place elsewhere. While delegates from 150 countries haggled over the clauses of an agreement on global carbon emissions, others were taking more immediate action.

That’s because the invisible hand of the market punishes polluters more harshly than any government would dare. And now the financial sector is turning off the money tap for the coal industry, the biggest climate change offender of all. We really are at a turning point.

Until recently, major corporations had one main climate change strategy: the energetic pursuit of “greenwashing,” the name given to bogus displays of environmental virtue. They would plant some trees in a burned-out rain forest. Or put up a nice windmill in a field somewhere. Or donate a few solar panels to Africa. But their core business remained untouched by all this, and CO2 emissions were the last thing on their minds.

The “divestment” process – the withdrawal of financial resources from climate-damaging activities – has been chaotic.

Then suddenly the game got serious. There was quick progress in political negotiations, technological innovation and pressure from civil society. All this meant that the end of the fossil fuel era suddenly became a realistic possibility. That forced even the worst corporate polluters to rethink their activities.

Veteran managers of huge oil companies are blinking in disbelief: very recently, they were still measured by the size of their proven reserves of coal, oil and gas. But now this wealth is all suddenly considered to be “stranded assets.” According to rough estimates, two-thirds of fossil fuel reserves should never be extracted if humanity is to avoid environmental catastrophe and huge migrations of climate refugees.

It turns out that yesterday’s valuable commodity is tomorrow’s – and even today’s – expensive millstone. Amid a host of unanswered questions, the affected companies are desperately trying to reorient themselves in today’s market. How many years will they have to convert? Should they massively increase solar- and wind-power generation? Or in 20 years’ time, will they still be able to make a living from oil and gas after all?

The situation is so serious that more than a dozen powerful oil companies have demanded carbon pricing to enable some kind of orientation. Or, to put it more brutally: they are demanding the rope that will hang them. There simply is no such reliable framework, however.

The “divestment” process – the withdrawal of financial resources from climate-damaging activities – has been chaotic. It’s like a boat where all the passengers are rushing to one side: if everyone does it, the process will intensify. But what happens if a lot of people rush back over to the other side?

At the climate conference in Le Bourget, the spotlight was on the fund managers and insurance giants who are moving their money to safety, moving it away from those “stranded assets.” Even three months ago, at the meetings preceding the main event in Paris, the prophets of the “carbon bubble” seemed rather exotic, with their talk of oil and gas assets becoming worthless overnight.

But now the rating agencies are publishing detailed studies, warning of “acute credit risks.” Moody’s foresees serious, damaging consequences for eleven major industries. Some $2 trillion in outstanding loans may be affected: that’s roughly equivalent to France’s annual GDP.

The car industry is among those affected. When that happens, even investors who care little about climate change feel obliged to act. Those investors may be unmoved by the fate of low-lying islands, or the threat to the populations of China, India or Bangladesh. But threats to their investments are a different story. The ratings agencies were famously asleep on the job in the run-up to the financial crisis, but if even they are sounding the alarm now, it should be taken seriously. 

Given the disorganized process of divestment from the carbon economy and the new risks to the financial sector, we might have hoped for some clarifying statements from the world’s central banks. But they are still fighting the last war: against deflation.

 

The author is a Handelsblatt correspondent in Paris. He can reached at: hanke@handelsblatt.com

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