It might seem as if the combination of oil selling off just as the latest United Nations climate-change assessment landed represents a sudden realisation about the hidden costs of fossil fuels. But oil never sells off because we’re using too much of it. The latest drop is tied to that other natural disaster, the pandemic, and what Delta might do to demand.
Oil equities, on the other hand, are more nuanced.
The social-media users among you will be aware that, in 2021, there is no shortage of people who have done their own research. The truly salient thing about the Intergovernmental Panel on Climate Change, however, is that it has done actual research and — critically — within its own area of expertise. And the panel’s message is unequivocal, which is presumably why it uses the word:
It is unequivocal that human influence has warmed the atmosphere, ocean and land. Widespread and rapid changes in the atmosphere, ocean, cryosphere and biosphere have occurred … Human influence has warmed the climate at a rate that is unprecedented in at least the last 2000 years.
There is more — much more; the full report, just the first of three, fills almost 4,000 pages. The IPCC’s message hasn’t changed, it’s just become more confident in its conclusions: Climate change is real, mostly man-made, already happening but can be addressed by cutting emissions.
That last point is the sore spot obviously, given our current dependence on fossil fuels. It demands a radical transformation of how we get our energy and use it. “Radical†can be seen as a loaded term, but there is no other word for it.
Equally, not changing course or changing too slowly and just accepting the effects of climate change is also radicalism of a different variety. That stance is sometimes dressed up as hardheaded realism — people won’t change, it’s too complex to deal with, etc. — but it’s really just saying humankind will blithely floor the gas as the cliff edge hoves into view. That’s quite possible, of course. On the other hand, faced with a global pandemic, we did manage to engineer a vaccine in unbelievably short order, so we shouldn’t write ourselves off just yet.
This is how Big Oil should regard the IPCC’s latest tome. Much has changed since the last assessment was published in 2013, including the relationship between the sector and its investors. Exxon Mobil Corp’s recent defeat at the hands of a small activist fund symbolises a broader breakdown in trust over the industry’s ability to invest wisely for its own future. It is notable that, after being given a shot in the arm last November by initial vaccine breakthroughs, the energy sector has derived less and less support from rising oil prices.
That disconnect, which good second-quarter results seemingly did little to fix, is rooted in a loss of credibility around things like budgeting and executive incentives. Climate change compounds this.
Casting doubt on the scientific consensus around climate change has been an extraordinarily successful endeavor these past few decades. Yet its continued success relies on maintaining that doubt in the face of increasing certitude — not just on the part of the IPCC’s conclave of scientists but also the likes of the International Energy Agency, a growing number of money managers and governments.
—Bloomberg