One obvious question is why the fossil fuel companies don't simply transform themselves into renewable energy companies and use the huge cash flows they still have to gain control of future markets. "They're putting under 10 percent of capital expenditures into renewables," says Bond, which translates into about one percent of their balance sheets. As Exxon's CEOrecently told The Economist, "we have much higher expectations for the returns on the capital we invest" than sun and wind can provide. From their point of view, there's some money to be made from putting up solar panels, but once they're on the roof the sunshine is free. For corporations that made vast profits by selling their customers fuel every day for a century, that's not an attractive business model.
Another important question is whether this transition will crash the world economy. Investors have money at risk, and not just in fossil fuel shares: a shift of this size will affect car companies, machinery companies, and many others. But as the climate activist and billionaire investor Tom Steyer has pointed out, most technological transitions damage existing industries without wrecking the economy because they create value even as they destroy it. "Look at the communications industry over the last two decades, as the Internet came of age," Steyer said. "Some of the most valuable businesses on the planet that had been around for more than a century got decimated. I mean, Newsweek sold for a dollar. But a lot of new businesses got created that were worth more."
And banks have had at least some warning to prepare for this enormous shift. In 2015 Mark Carney, the governor of the Bank of England, began issuing strident warnings about stranded fossil fuel assets, urging the banks he regulated to begin taking close account of their exposure. He gave a memorable speech on the trading floor of Lloyds of London, pointing out that if countries made serious efforts to meet climate targets, vast amounts of money spent on oil wells, pipelines, coal mines, and tankers would be written off. He had to issue the warnings, he said, because the normal time horizon for financiers was too short. "Once climate change becomes a defining issue for financial stability, it may already be too late," he said, noting that "the exposure of UK investors, including insurance companies, to these shifts is potentially huge." He urged them to start preparing for a lower-carbon world. Companies, he said, should "disclose not only what they are emitting today, but how they plan their transition to the net-zero world of the future."
Carney's warning -- which reverberated out from the financial center of London -- seems to have spurred a reevaluation of fossil fuel exposure by many big financial institutions. "The major banks are now addressing this risk, whereas three years ago they were asleep to it," Buckley said. "Now in Australia all our banks have climate policy, where they didn't three years ago. We didn't even have data." A report in late February from the Institute for Energy Economics and Financial Analysis showed that since 2013 a hundred major banks had restricted coal lending or gotten out of the business altogether. [See "Over 100 Global Financial Institutions Are Exiting Coal, With More to Come," February 27, 2019; available at IEEFA.org.]
A far more important question, of course, is whether the changes now underway will happen fast enough to alter our grim climatic future. Here, the answers are less positive. Scientists, conservative by nature, have routinely underestimated the pace of planetary disruption: the enormous melt now observed at the poles was not supposed to happen until late in the century, for instance, and the galloping pace of ocean acidification wasn't even recognized as a threat two decades ago. That means that we have very little time to act -- not enough, certainly, for business cycles to do the job alone. The latest report of the Intergovernmental Panel on Climate Change, released last autumn, laid out a strict timeline: we need to effectively halve our use of fossil fuels within a dozen years to prevent the worst damage, which is why activists and politicians have called for dramatic government interventions like the Green New Deal recently proposed by Representative Alexandria Ocasio-Cortez and her Democratic colleagues. [See my "A Very Grim Forecast," The New York Review, November 22, 2018]
Government action is required because, for one thing, there's vast inertia in the energy system. Plants are built to last decades, and even if plants that use fossil fuels aren't built today, banks will insist that existing ones operate long enough to pay back their investments. And in some parts of the world, fossil fuel expansion continues: China, for instance, is trying to close down its own coal-fired power plants because its cities are choked in smog, but Chinese companies are using their expertise to build coal-powered plants abroad. Buckley noted that the opportunities for bribes on colossal projects mean, among other things, that a number of developing countries may indeed continue down the fossil fuel path.
In countries like the US or Canada, the political power of the fossil fuel industry is still considerable. Barack Obama boasted to a Texas audience last year that during his administration the US had passed Russia and Saudi Arabia as the biggest producer of hydrocarbons; even the progressive Canadian prime minister Justin Trudeau recently spent billions in tax dollars to finance a pipeline designed to increase exports from the country's environmentally ruinous tar sands.
That's why the most important aspect of the decline of fossil fuel companies might be a corresponding decline in their political influence. The coal, oil, and gas industries have been the architects of the disinformation campaigns that kept us from responding earlier to scientists' warnings about climate change, and they are using every trick they know to keep us from making a quick transition. History indicates that "the oil majors -- and those who invest in them -- will "bribe and fund Trump-type candidates and use their money in any other way" to slow down change, Carlota Perez said.
But change is here. While engineers are doing their part by making renewable energy cheaper, activists are mounting efforts to weaken the companies directly, and there are some signs that the pressure is working. An effort that I helped launch beginning in 2012 to persuade universities and churches to divest their fossil fuel shares has spread rapidly and become the largest divestment campaign in history. Over the last five years, insurance companies and sovereign wealth funds have joined in, raising the total value of endowments and portfolios involved to over $8 trillion, and prompting Shell to declare the campaign a material risk to its future business. (Early last year, the governments of New York City and London pledged to divest their pension funds, and the entire nation of Ireland joined in midsummer.) Campaigns have also targeted banks like Wells Fargo and JP Morgan Chase to force them to stop supporting particular pipelines.
The bottom line is clear: to the degree that the fossil fuel industry is weakened by some combination of technological change and furious activism, the chances for serious change increase. If energy barons like the Koch Brothers and Exxon remain flush with cash, they can probably delay or undermine initiatives like the Green New Deal. But if their businesses are under strong pressure from a rapidly changing energy economy, polities around the world would be freer to take the steps that scientists insist are necessary with the speed required to prevent global catastrophe. Should these changes happen quickly, they could do more than save us from planetary peril.
"A New World," the January report on the geopolitics of energy transformation from the International Renewable Energy Agency (IRENA), is one of the most hopeful documents I've read in a long time: it points out that for the 80 percent of the world's population that lives in countries that are net importers of fossil fuels, the transition to renewable energy means the end of a crushing import burden. "The long-term consequences of a switch to renewables are very positive," said Bond, who helped write the report. "Fossil fuels are produced by a small number of companies and countries and the benefits flow to a small number of people. With solar and wind you get a lot more local jobs, a lot more local investment. You get a whole new geopolitics."
Take India, the poorest large nation on earth. It imports 80 percent of its oil and 40 percent of its gas, along with much of its coal. Currently that costs the country $240 billion a year; if, as its leaders hope, its economy grows 7 percent annually, that figure would double in a decade -- which is economically unsustainable. "Renewables also offer developing economies an opportunity to leapfrog, not only fossil fuels, but, to some extent, the need for a centralized electricity grid," the IRENAreport concludes.
"Countries in Africa and South Asia have a golden opportunity to avoid expensive fixed investments in fossil fuels and centralized grids by adopting mini-grids and decentralized solar and wind energy deployed off-grid -- just as they jumped straight to mobile phones and obviated the need to lay expensive copper-wired telephone networks."
The changeover, of course, would be rocky. Beyond the effects on the global economy or on particular companies and their investors, countries like Russia or Saudi Arabia (and increasingly parts of the US) are essentially oil companies themselves. As these petro-states face a fall in the value of their only real asset, there is a risk of destabilization on a vast scale; in fact, it's possible that we're in the early stages of this process, with mischief and cruelty increasingly on display as countries with no other source of economic power struggle to maintain profits while they can. The worst damage will, as usual, be inflicted on the poorest oil producers: Kuwait might be able to manage the transition, but could Angola?
Yet overall, the benefits would be immeasurable. Imagine a world in which the tortured politics of the Middle East weren't magnified in importance by the value of the hydrocarbons beneath its sands. And imagine a world in which the greatest driver of climate change -- the unrelenting political power of the fossil-fuel industry -- had begun to shrink. The question, of course, is whether we can reach that new world in time.
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