Fossil Fuels’ Value Not Imperiled By Climate Policy

  • Date: 17/04/16
  • Michael Lynch, Forbes

From 2010 to 2014, global coal consumption increased by twice as much as wind and solar combined, and the rise of cheap natural gas in the U.S., along with the recent economic slowdown in China, are the main sources of the woes of the coal industry.

energy change

Change in Global Energy Consumption 2010-2014 (mtoe)

Amusingly, one pundit described the bankruptcy filing of the coal giant Peabody Energy as educational for the petroleum industry as to the effect of climate change on their business, saying, “it acts as a warning to oil and gas companies – and their investors – about how quickly things can change.” Luke Sussams, of the Carbon Tracker Initiative, said, “The Chapter 11 filing highlighted the risks of fossil fuel assets becoming stranded because of tightening environmental regulations and the availability of cost-competitive renewable energy alternatives.”

At the same time, climate change activists Nicholas Stern and John Gummer assure us that “the difficulties facing the steel industry arise overwhelmingly because of overcapacity in world markets.”  I would agree, but the contradiction with attitudes towards the fossil fuel industry should trouble those arguing that fossil fuel reserves are threatened by climate change policies. (Coal is threatened by regulations addressing air pollution in China and India much more than climate change policies in the U.S. and Europe.) […]

Climate Tracker took exception to my post which argued that the impact of climate change policies on the value of petroleum reserves was insignificant, contradicting the very public attack on those like ExxonMobil who supposedly are defrauding shareholders by not disclosing this problem. Their basic argument is as follows: climate change policies will reduce the trajectory of energy demand, and high-cost projects will thus be at risk, meaning companies will lose money or at least their shares will underperform.

The reality is that high-cost projects are most at risk from low-cost projects, followed by slow demand (economic weakness), and climate change policies a distant third, at best. Indeed, from 2010 to 2014, global coal consumption increased by twice as much as wind and solar combined, and the rise of cheap natural gas in the U.S., along with the recent economic slowdown in China, are the main sources of the woes of the coal industry.

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see also Threat To Value Of Fossil Fuel Resources Misplaced



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