Guest essay by Eric Worrall
Another attempt to starve fossil fuel projects of banking services.
Threat from climate change to financial stability bigger than Covid-19
Report urges capital requirement rules for banks lending to fossil fuel groups to be tightened
In his latest research for the Finance Watch advocacy body, Thierry Philipponnat — a board member at the French financial regulator, and one of the EU’s technical experts on sustainable finance — has recommended increasing the risk weightings banks must apply to their oil, gas and coal exposures.
According to Mr Philipponnat, only this regulatory approach can end the “climate-finance doom loop”, in which fossil fuel finance enables climate change, and climate change threatens financial stability, through disruptive natural events.
“The actions we are proposing today are far less radical or costly than those taken in response to the Covid-19 crisis but they target a far bigger threat,” said its secretary-general Benoît Lallemand. “They address a disruption risk of another order of magnitude.”
…Read more: https://www.ft.com/content/710cc474-15f7-4db0-8d54-a50f161f76bb
Proponents of stranded asset theories in my opinion cannot adequately explain why fossil fuel assets will become stranded.
Current generation renewables cannot replace fossil fuel. Renewables are so extremely resource intensive, it is likely renewables cannot repay the full energy cost of their construction and installation. A colossal increase in extraction and processing of minerals, including a 30-100% increase in neodymium production, a 38-105% increase in silver production, and an eye watering 2700% increase in lithium extraction, would be required to build the renewable overcapacity and energy storage which would be needed to replace today’s reliable fossil fuel energy infrastructure.
If you assume all this new extraction activity will be powered by renewables, its likely you end up with a runaway situation, in which renewable infrastructure can never satisfy the energy needs of industrial infrastructure used to build renewables.
You would think this is something a banking regulator promoting the idea of stranded fossil fuel assets ought to be aware of.
There are shifts in the mixture of fossil fuel, and the Covid crisis has demonstrated there can be unexpected abrupt downturns in total energy demand, but unless the world suddenly decides to embrace nuclear energy, the world’s growing hunger for electricity should ensure continued demand for fossil fuel for the foreseeable future.