The global inequity of corporate climate activism

In May the International Energy Agency released a roadmap to net zero emissions by 2050 for the global energy sector. It is, by any measure, a massive undertaking to forecast or plan energy market trends five years into the future, let alone 30 years. A zero emissions roadmap by 2050 is, by necessity, filled with lots of assumptions and modelling based on these assumptions. It’s a roadmap, a guide, not a global order.

A much highlighted observation from the IEA roadmap was that no investment would be needed in developing any new oil, gas and coal fields, but only if there was global policy agreement and focus on achieving net zero emissions by 2050, resulting in a major and immediate global pivot away from fossil fuel use.

Clearly this is not the case, by some margin. Global agreement on deep emissions cuts remains patchy. Major economies like China, the US, Japan and Korea have all made political commitments to net zero, but have not backed them with the aggressive policy alignment the IEA was talking about.

As a result, in the real, non-IEA roadmap, world, demand for fossil fuels are staging something of a renaissance. Oil prices have rebounded sharply after the COVID-19 pandemic and oil price wars on 2020, fully recovering from those sharp price declines. Global gas prices have also recovered. Thermal coal prices are back to nine-year highs, all reflecting strong energy demand growth as the global economy surges  on sustained pandemic-linked fiscal spending.

In economies like Australia the requirements of the IEA’s big ambition scenario is being cast as a guiding policy principle: that all new fossil fuel investment must stop. Yet global coal production is expected to increase 3.5 per cent in 2021, led by India then China, Indonesia, Australia and South Africa. Oil and gas outputs will inevitably follow higher prices too.

What this means in the real world is a net transfer of wealth, from listed businesses exposed to shareholder and investor risk, to private capital and fields operating in developing or those with more sympathetic governments, like Russia and the oil states.

US fund manager Elliott Management Corporation is looking to acquire BHP’s coal mining assets that will be offloaded to meet the miner’s new sustainability commitments. Elliot has been eying off a number of these sales from Australian miners, picking up profitable and cheap businesses because it is better placed to manage the capital and investor risk than a high profile miner. BHPs loss is Elliott’s gain, with no sign of any carbon price in sight, either in Australia or the US.

Woodside is looking nervously at its two new proposed gas expansion projects, the $16 billion offshore Scarborough project and the Pluto LNG expansion. The company has been under growing pressure from the WA government to cut its emissions to get the go ahead on the projects. Oil majors Shell, Exxon and Chevron have all come under intense shareholder, activist and investor pressure in recent weeks, suggesting it will only get harder for resource businesses exposed to these pressures to develop fossil fuel resources.

This uneven global playing field will not only accelerate wealth transfer from politically vulnerable to less vulnerable capital, but it will have little impact on reducing net global emissions. Stopping fossil fuels at their source wont work. High emissions enabling and exporting economies will need to see material economic peril from carbon import tariffs into their big export markets before they will begin to align with the ambitions being modelled by the IEA.