When Alberta Premier Rachel Notley spoke at the NDP Convention last weekend, she made an adamant plea that party members support her province’s plan to tackle climate change, including building a pipeline.
Albertans have been devastated by the collapse in oil prices and the mass layoff of workers. And it won’t help that the Canadian Association of Petroleum Producers is forecasting a drop of $50 billion in capital spending in 2016. That’s a 62 per cent decline over 2014 when $81 billion was spent. This year’s projection is $31 billion, the largest two-year drop since 1947.
Notley also took aim at activists inside the NDP who floated the controversial and ideological Leap Manifesto, a document that, among other things, rejects building any more pipelines and Canada having a 100 per cent clean green economy by 2050.
In no-oil’s corner is a new study released from the Institute of New Economic Thinking, Oxford University, which took a hard look at electrical power plants driven by fossil fuels and the tightening timeline of business as usual. They floated a new analysis that extended the concept of “stranded assets” that includes not only the assets of fossil fuels still in the ground but plants and equipment used to extract and transport raw material.
Using IPCC carbon budgets, the authors calculated the two-degree capital stock, i.e. the time it will take for future emissions to have a 50 per cent probability of staying within 2C global warming. Their calculations based on the business of fossil fuel extraction as usual shows we hit that wall in 2017. Next year.
Beyond that, the fallout from climate change may force companies in the future to abandon fossil fuel extraction leaving reserves in the ground and shutting down or writing-off plants before they have provided their full usefulness. These are the stranded assets the report refers to and should be of concern to potential investors who may be left stranded themselves if corporate reserves of coal, oil and gas have to be abandoned in favour of green energy alternatives.
The research team recommends that “The least risky and most economically prudent course of action is to shift all new energy investment to zero carbon as rapidly as possible.”
Boots-on-the-ground reality is that, while oil isn’t going away immediately, the transition to clean energy is accelerating.
According to a report from Clean Energy Canada, investment in clean energy rose 88 per cent in 2014 to almost $11 billion. Bloomberg New Energy Finance reports that clean energy investment globally in 2015 was at an all-time high of $329 billion. In the same week of that announcement, $380 billion worth of oil exploration projects were cancelled.
The BNEF report confirmed that the transition from fossil fuels to clean energy is “very much under way.” China alone accounted for more than $110 billion in clean energy investment and the country has cracked down on coal consumption and production while rapidly installing solar and wind. BNEF predicts China will be the largest clean energy market in 2016. The huge investment in green energy happened even as oil prices plunged.
According to Analytica Advisors, there are 50,000 people employed directly in over 800 firms in Canada’s $12 billion green technology industry.
The takeaway is that there is plenty of opportunity for work in green industries for displaced oil workers. Many have engineering and technical experience that, with a bit of re-honing, become hirable skills.
For investors, they need to look hard at the future of oil extraction, pipelines and climate risk. Rather than risking an income stream becoming a stranded asset, some are clearly making the shift to opportunities with promising returns in green energy futures.
