23 October 2015
by Giles Parkinson

Fossil fuel giants still betting trillions on nothing changing

The multi-trillion dollar global fossil fuel industry continues to believe that nothing much will change, despite the push to lock in ambitious climate policies in Paris next month, and the emergence of new technologies that completely change the energy market.

A new report “Lost in Transition, How the energy sector is missing potential demand destruction” from the London-based Carbon Tracker Initiative points out that Big Oil, and Big Coal, want investors to back their multi-billion dollar projects on the basis of a false hope: that nothing will change.

This is despite pledges already made in the lead up to the Paris climate change conference that even the conservative International Energy Agency says will result in minimal growth in emissions between now and 2030 – meaning little growth in the market for coal, oil and gas plants.

As Carbon tracker’s James Leeton describes it, the big fossil fuel giants are not just trying to kid their consumers – as VW did through its massive diesel emissions fraud – they are also trying to kid themselves and their investors.

Leeton points out nine assumptions of “business as usual” made by Big Oil and Big Coal in defending their belief that the use of oil, coal and gas will grow by up to 50 per cent in the next few decades, and still account for 75 per cent of the energy mix in 2040.

“Fossil fuel industry thinking is skewed to the upside, and relies too heavily on high demand assumptions to justify new and costly capital investments to shareholders,” Leeton says.

“We have seen in recent weeks how the fossil fuel sector has misled consumers and investors about emissions — the Volkswagen scandal being a case in point — and deliberately acted against climate science for decades, judging from the recent Exxon expose.

“Why should investors accept their claims about future coal and oil demand when they clearly don’t stack up with technology and policy developments?”

The Carbon Tracker analysis suggests that the fossil fuel industry is too optimistic on a range of assumptions, including population and economic growth, and completely ignores the recent climate pledges from more than 150 nations.

Indeed, the fossil fuel industry – and some government policy making such as Australia’s recent energy white paper – relies on the IEA’s “new policies scenario”, which essentially means business as usual. It misses 100GT of reduced emissions from the Paris pledges.

Big Oil and Big Coal also ignore the technology and structural change sweeping global markets. The speed and scale of advancements in the competitiveness of renewable energy technologies is exceeding expectations, particularly in the case of battery storage. “The synergy between energy storage and renewable energy technologies has the potential to transform energy markets, but is not being factored into fossil fuel scenarios,” it says.

Global coal demand is also in structural decline. China has shifted its energy system to such a degree that peak coal demand could occur in the very near-term. India has an ambitious short-term solar PV plan (160GW of solar and wind by 2022) that, by Carbon Tracker’s calculations, could displace 158 million tonnes – roughly India’s total coal imports in 2012.
The report also takes issue with the Big Coal marketing line, eagerly repeated by the Turnbull government in defence of the Carmichael mine and the Galilee Basin coal province, that coal is an answer to global energy poverty.

It points out that two countries with large numbers of people without power – India and Indonesia – have large amounts of coal but have not been able to build the infrastructure. And many other countries, particularly in Africa, have no access to coal.

“Coal is not the most appropriate solution for these countries to try and connect the rural poor with power because expensive new grid and importing infrastructure would be needed,” it says. “The poor will not save coal demand.” The analysis also says the fossil fuel industry is completely ignoring the potential take up of electric vehicles, suggesting negligible take up by 2040. To illustrate the conservative nature of “industry” and agency forecasts, Carbon Tracker uses this graph showing how the IEA completely missed the solar market, which incidentally had been accurately forecast by NGOs such as Greenpeace.

This is not just the fault of the fossil fuel interests themselves, but a whole infrastructure and network of agencies and institutes that have guided energy policy, and continues to be ultra conservative.

The IEA continues to get it wrong. New reports about the potential growth of solar are effusive, but it is still accused of underestimating its potential cost reductions and growth rates. One study suggested it was because it always assumed linear rather than exponential growth rates.

Still, its latest report, an assessment of individual country pledges to the Paris conference, known as INDC (, the IEA says this represents a significant deviation from business as usual, with energy-related GHG emissions to plateau or be in decline by 2030, including the EU, the US, China, Japan, Korea and South Africa. This is despite a 40 per cent increase in overall demand.

The IEA says that Paris pledges mean that more than 60 per cent of new power generation out to 2030 is expected to come in the form of renewable energy. This amounts to $US4 trillion, with one third in wind power, one third in solar, and one quarter in hydro. It suggests an extra $US1 trillion is needed to meet 2C climate targets.

It says that by 2030, there will still be 42GT of energy related emissions across the globe. The proposed Carmichael coal mine, for instance, could account for 6GT of emissions. Even the Bank of England has pointed to the risk of stranded assets, noting that the majority of fossil fuel reserves need to be left in the ground to meet climate targets and adhere to the “carbon budget.”

“The incumbents are taking the easy way out by exclusively looking at incremental changes to the energy mix which they can adapt to slowly,” Carbon Tracker’s senior analyst and co-author, Luke Sussams, said.

“The real threat lies in the potential for low-carbon technologies to combine and transform society’s relationship with energy. This is currently being overlooked by Big oil, coal and gas.”

In Australia, this trend has been reflected in conservative estimates on technology costs, and a bias towards “conventional fuels” over new technologies. The networks and government regulators over inflated demand forecasts, resulting in a $75 billion spend on poles and wires when demand actually remained static.

There is now a major push for nuclear, partly justified by optimistic cost estimates from the Bureau of Resource and Energy Economics that completely ignore the experience in other deregulated markets in Europe and the US.

The trend continues, with a new report by the Australian Energy Market Commission and CSIRO predicting slow take-up of battery storage and electric vehicles over coming decades, despite predictions by financial analysts, and agencies such as the Climate Council, which predict rapid and widespread take up within a decade.

The AEMC used the analysis to conclude that its policy regime is solid enough – with maybe a few small adjustments – to cope with the introduction of new technologies.

Most independent analysts differ, saying that policy makers and regulators are hopelessly behind, and risk repeating the same mistakes that were made with rooftop solar, despite the endless warnings.