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Why it’s getting harder to kick our fossil fuel addiction

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One thing to start:

Welcome back to another Energy Source.

There was a flurry of news on the liquefied natural gas front yesterday as the fallout from the global fuel crisis continues to redraw the energy map.

Here in Texas, Cheniere Energy said they were going ahead with an $8bn expansion of its export plant in Corpus Christi — the latest sign of surging global demand for American natural gas in the wake of Russia’s invasion of Ukraine. The expansion came alongside a number of new supply deals for Cheniere and its American rival Venture Global this week, as Myles reported.

Fuel prices also remain in the spotlight in the US. President Joe Biden has proposed a suspension of the federal gasoline tax in his latest bid to try to bring down petrol prices. However, it would require congressional approval, which looks unlikely. Biden’s plan came ahead of what could be a testy meeting today between energy secretary Jennifer Granholm and executives from the US’s largest fuel producers.

Still, drivers in the US and elsewhere could see some relief at the pump in the coming days. Brent oil prices fell sharply yesterday to just under $112 a barrel and are now down about 10 per cent since June 8 as central bank tightening and worries about an economic downturn grow.

In today’s newsletter, Derek revisits a question he asked last year: will soaring fuel prices speed up or slow down the energy transition? Derek is changing his answer after watching world leaders struggle to handle the energy crisis. Make sure to cast your vote and we’ll update you on the results in the next issue.

In Data Drill, Amanda highlights a report showing there are far more fossil fuel reserves being held by publicly listed companies than can be safely burnt.

Thanks for reading!

Justin

What I got wrong about the energy transition

Last year we asked readers whether the soaring fossil fuel prices in Europe would speed up or slow down the energy transition. Your votes leaned towards the direction of “speed it up”. That was before the UN climate conference. It was also before Vladimir Putin ordered tanks into Ukraine and western countries began sanctioning Russian oil and gas; before oil prices surged to near-record highs; and before yet more disruption to Gazprom’s exports to Europe.

It’s time to vote again. We want to know if everything that has happened since has changed your view.

Poll: How will surging fossil fuel prices affect the energy transition?

I’m changing my vote. In September, I assumed that soaring natural gas, oil, and even coal prices would accelerate the rush into cleaner energy, dealing a fundamental blow to the world’s petrostates and the men that run them.

But prices went even higher — and the reaction in western capitals makes me doubt the views I held last year. US president Joe Biden’s experience is telling. He pledged to make climate change and the energy transition central to his entire presidency. Some climate campaigners even hoped that the US could establish a carbon tax — a market mechanism to make polluting fuels more expensive and push consumers to cleaner alternatives.

Fat chance. The administration is now doing its utmost to make America’s favourite fossil fuel — petrol — cheaper, while calling on oil companies to drill more wells, pump more crude, and build more refineries. Unless decarbonisation can be done at zero cost to consumers, it seems political backing will be fragile.

In the teeth of a deepening energy crisis in Europe, meanwhile, governments such as Germany’s — home of the Energiewende, one of the boldest transition plans of the past two decades — are now rushing to reopen coal plants and import more liquefied natural gas.

You can argue that this is sensible politics. First, because Europe wants to break its dependency on Russian energy and deprive the Kremlin of the financial means to keep waging war in Ukraine. Fine (although Russian income has not suffered).

And second, because de-Russifying European energy will involve a huge dislocation — so unless western leaders can shelter consumers from the inevitable price shock, then voters will ditch politicians who at least have a climate goal (like Biden) for those that don’t (like Donald Trump).

And it’s not a hopeless situation. Renewable energy capacity continues to expand globally, despite bottleneck and supply chain problems (and despite feckless politicians). Europe still has a plan to decarbonise its energy sector — and Ukraine gives it more momentum. Some optimists believe Biden could even enact some of his huge climate spending bill before the midterm elections in November that many pollsters expect will be punishing for his fellow Democrats. Even if only part of it gets through, it would be a huge investment in a cleaner energy future for America.

But the short-term urgency to secure energy supplies is feeding into more fossil fuel demand now. Pretending that even a temporary revival of coal-fired generation or new petrol price subsidy will help ease the fossil fuel dependence is like a junkie thinking one last week-long binge will break his addiction.

And any new fossil fuel infrastructure developed now — like the big new LNG export terminal Cheniere decided to build on the Texas coast — will last generations. Some will say the absence of that kind of investment in recent years is what helped cause today’s crisis; that supplies were running short of demand even before Putin sent the tanks into Ukraine. But the IEA was clear last year: to meet the world’s climate goals, build no new fossil fuel projects.

The odour of rich-country hypocrisy is what might be most damaging, making global climate co-operation harder. How can western leaders call for an end to fossil fuel subsidies, for example, or seek to halt financing for hydrocarbons projects in poor countries, while the Biden administration and European Commission sign deals for more American LNG, western governments slash fuel taxes, and G7 leaders plead for more crude from Opec? Should poor countries without adequate electricity avoid coal while Germany, the world’s fourth-largest economy, starts burning lignite again?

It’s a question that might hang over the debates at this year’s UN climate conference in Sharm el-Sheikh. Putin will be delighted. (Derek Brower)

Data Drill

Ninety per cent of all fossil fuel reserves must stay in the ground if companies want to meet Paris climate targets, says a new report by Carbon Tracker.

Embedded emissions, or emissions from the burning of reserves, total 3,700 gigatonnes of CO₂. Nearly a third of these emissions are embedded in reserves owned by publicly traded companies. The report found that companies listed on global stock markets own three times as much coal, oil and gas reserves than what can be burnt while still keeping global warming under 1.5C. 

Shanghai’s exchange held the most reserves, with 180 gigatonnes of CO₂ in embedded emissions — that’s already more than half of the total the world can safely burn, according to Carbon Tracker. When adjusted for state-owned companies, New York, Moscow, Toronto and London top the list of exchanges for reserves.

“If governments are really serious about climate change they must ensure that the activities of stock exchanges and the financial centres around them are consistent with national climate goals and net zero commitments or we will lose any chance of meeting the Paris target,” said Thom Allen, an oil and gas analyst at Carbon Tracker and one of the authors of the report. “This is especially important now as fossil fuel prices and related company stocks soar.”

These large reserves leave exchanges with high transition risks, says Carbon Tracker. Roughly $600bn of oil and gas assets held by public companies are at risk of being stranded, with those listed in New York the most at risk. The report found that while New York-listed companies have $550bn in potential upstream capital expenditure over the next decade, just $140bn will be viable to keep warming to below 2C.

The report comes as financial markets move to stiffen regulations on climate risk disclosures, which corporate lobby groups are pushing back against. The US Securities and Exchange Commission last week ended its comment period for its proposed rule on mandatory emissions and climate change risk reporting. (Amanda Chu)

Bar chart of Emissions embedded in reserves of listed and partially listed companies, GtCO2 showing Financial centres hold three times more fossil fuel reserves than can be burnt to keep warming to 1.5C*

Power Points

  • Mining companies Glencore and BHP say they can’t capture methane emissions from open-cut coal mines.

  • Crédit Agricole, one of France’s largest banks, doubles down on decarbonisation strategies despite Europe pivoting back to fossil fuels due to the war in Ukraine.

  • The global steel industry faces over $500bn in stranded assets as countries continue to build coal-powered blast furnaces that are incompatible with emissions goals.

Energy Source is a twice-weekly energy newsletter from the Financial Times. It is written and edited by Derek Brower, Myles McCormick, Justin Jacobs, Amanda Chu and Emily Goldberg.

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