Mark Campanale believes progress can be made in the fight against climate change by making carbon investment risk apparent in capital markets.
Campanale is the founder and executive director of the Carbon Tracker Initiative, an independent financial think tank that provides in-depth analysis on the impact of climate change on markets.
He argues aligning capital markets with climate reality will lead to lower emissions because some of the oil owned by the big companies will become stranded assets — meaning they will become suddenly devalued prematurely because of the shift to a greener economy.
Camapanale stopped by On The Coast for a chat with Stephen Quinn about why low-carbon investments are more ethical and make sense in the long-term.
- How do GHG rules weigh on oil investments? New tool crunches the numbers
- Failure to divest carbon assets has cost pension plans $22B, report finds
- Climate change is an investment risk, says BlackRock
How can we reduce emissions and tackle climate change through the markets?
We decided to look at the world's top 200 coal, oil and gas companies. When we looked at their plans over the next five, 10, 15 years, to develop all these projects, we counted the projects and looked at the CO2 in these reserves and we realized there's enough coal and oil out there to take us way beyond five degrees of warming. So the question then is, how do we keep it in the ground, and that's the role of the financial markets. Do we really want to be betting our future, do we really want to be betting our pension system, our saving system, on developing these projects which would ultimately have to stay in the ground and unused?
But who's going to make sure they stay in the ground? There's talk of developing liquefied natural gas in this province, we talk about pipelines in Canada.
Investors are. If you look at pension funds around the world, there's $10 trillion in pension fund money committing themselves to the process of de-carbonizing their investment portfolios. Which basically means they're selling their coal stocks, they're selling their oil stocks. This is because of the risks of developing coal projects and oil and gas projects which are just not going to be needed if we go about addressing climate change.
But are those risks not to do with fluctuations in the market caused by things like oversupply by Saudi Arabia?
Our view is demand for coal in China peaked. Our view is we are actually beginning this decarbonization process, and these coal projects just aren't going to be needed as we switch to solar, as we switch to energy efficiency. These are structural changes, not cyclical. China's investing billions in solar, and last year was the biggest installer of wind. So they're making a commitment to go green far faster than other economies.
How receptive are investors, and oil and gas companies, to that idea?
Just in the last year we've seen that over $400 billion worth of oil and gas projects have been cancelled, postponed or rescheduled because of falling demand and falling prices. There's signs that the price of oil may stay lower for longer, and if that's the case, then a lot of these speculative plans just simply aren't going to be needed as we go through this clean energy transition.
What is the best way of going about convincing people that your approach is the best way forward and that we need to align capital markets with the climate reality in which we find ourselves?
Just look at the share prices of coal companies in the last two years: they've lost 90 per cent of their value. If we look at the performance of the fossil fuel sector as a whole, including oil and gas, it's hugely underperformed the mainstream stock market. It's just been a bad place to put your money these last three years. So in our view, investors should be very cautious about companies saying, "Hey, there's going to be a lot more demand for our products in coming years." We're seeing the rise of the electric vehicle, we've got these new factories being built by Tesla and other companies, this is going to be the place to go. This is where investors are beginning to look. They're looking at the clean energy economy.
But people will tell you now that the world moves on fossil fuel.
But it won't do forever, and the message we have to have is if governments are serious about climate change, we've only got about 20 years before we blow the carbon budget, before we exceed this two degree threshold that governments have set, and we really need to get going now.
This interview has been condensed and edited for length and clarity. To hear the full interview, click the audio labelled: How investors are helping transition to a low-carbon economy