French Banking Regulator Urges Greater Risk Weightings for Fossil Fuel

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

Matthew Vincent 

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.

23 thoughts on “French Banking Regulator Urges Greater Risk Weightings for Fossil Fuel

  1. French banks have no real role in world wide capital markets, the entire contribution to corporate capitalization of all Paris based banks is something short of 100 billion euros. The Credit Suisse, alone, has many multiples of that.

    • No one cares whether french banks avoid making a fortune from financing fossil fuels. This is not finance, no science, it’s BS political games.

      They are probably hoping to encourage other EU nations to do similarly stupid moves. The unelected commissars in Brussels are already doing their best to destroy the future of the continent in every way possible.

      Proponents of stranded asset theories in my opinion cannot adequately explain why fossil fuel assets will become stranded.

      There is no logic. They are trying to create a self fulfilling prophesy. It’s the opposite of talking up and investment. They think if they can cast the idea that investments will be stranded they can convince finance to abandon fossil fuels, run down the industry and “leave it in the ground”.

  2. “fossil fuel finance enables climate change, and climate change threatens financial stability, ”

    This sounds crazy in a number of ways.

  3. More virtue signaling from the finance sector, nothing more. They’ll change their tune when their portfolios under perform. Everyone wants to save the world until they’re asked to make a contribution or take a hit on their own lifestyle.

    • The finance sector doesn’t do ‘virtue signaling’, they ONLY care about making money.
      This is more likely in support of their investments in ‘renewables’.

      Something like ‘if your great plan turns out to be a bad investment (because it just doesn’t work) you can always try to Force people to buy your product anyway’, through legislation and other means. Works for them, never mind the cost to others.

      As they say, follow the money.

  4. Sometimes I wonder how much the Russians and/or the Chinese are paying these guys to destroy Western energy-based economies along with the West’s oil and gas production corporations.

    Stalin called them “useful idiots.” The Chinese call them “baizou.”

  5. The response to Covid-19 was perhaps the greatest mistake made by most governments simultaneously in the history of mankind.

    You ain’t see nothing yet.

  6. The impact will of course be to deny affected banks profitable lending opportunities, forcing them to consider far riskier propositions that will undermine their stability. Meanwhile, the business will go elsewhere to the Russians and Chinese (and if they remain sensible, the Japanese), who will not only be providing debt finance that washes its face, but equity as well, and all that comes with business ownership, including security of supply of key energy resources.

    Meanwhile the obverse will apply to neodymium for wind farm generators etc., with the Chinese refusing to grant any foreign mining rights.

    In short, it is a recipe for industrial destruction. I’m sure the French have been taking advice from Mark Carney on how to go green, woke and broke.

  7. Threat from climate change ideology to financial stability bigger than Covid-19.
    There, fixed.

  8. “climate-finance doom loop” – it’s life Jim but not as we know it.

  9. Humanity is in no danger of running out of delusion, ignorance, hypocrisy and outright stupidity.

    Only a mind-boggling, sclerotic, bloated, Orwellian bureaucracy could possibly invent a novelty called a “technical expert on sustainable finance.”

  10. But Eric, the ingenuity of Man will lead, quickly, to breakthroughs that will solve all the problems with renewables.

    And, as the finance sector’s allies, the Governments, regulate the fossil fuel industry into oblivion, then those assets will become frozen.

  11. The thing is, there’s an enormous amount of money in the CO2 scam. If CO2 was not to be seen as this existential threat, a large number of people would suddenly be ruined. Take ultra expensive floating offshore windmills- if I was a banker exposed to their debt I’d be dead worried.

  12. “Renewables are so extremely resource intensive, it is likely renewables cannot repay the full energy cost of their construction and installation …”.
    Add life-time operation, provision of adequate storage, maintenance and safe disposal.
    Even if they do return more energy than they use it is only by single digit multiples, not nearly enough to supply and maintain a modern economy.
    https://festkoerper-kernphysik.de/Weissbach_EROI_preprint.pdf
    It ought to be intuitively obvious but they sit in front of screens in flash offices gazing at numbers divorced from the real world with no concept of the scale or scope of energy demands.

    • Chris Hanley
      I note that the preint is dated 2013. Was it ever published as a full paper?

  13. 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.

    In other words, overall, fossil fuel investments will continue to yield good returns and fossil fuel companies will continue to be profitable enterprises. Unless and until the government makes it impossible and/or illegal for them to do so.

  14. You just have to add up the amounts of materials required to see how wind and solar, and batteries is not deliverable. The GWPF paper on converting the UK vehicle fleet to battery use would require nearly TWICE the global Cobalt production. Given that the primary user of Cobalt is the steel industry and they are not going to give up that, how can the world switch to battery vehicles when even the UK can’t. Yes, there is an admission in the Climate Change Committee that behaviour might have to change – ie don’t expect to own a car, they are only for the elite. The paper also estimates that the UK would require 3/4 of world lithium, nearly ALL of the neodymium and dysprosium, and more than half of the world’s copper, so with all that UK – and even European – battery car dream is dead before it gets started.

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