Episode 26

A cataclysmic event happened a few days ago. The largest multilateral lender in the world, the European Investment Bank said no more lending to fossil fuels. That’s oil, gas and coal.

Why cataclysmic? It’s the gas bit.

Because we’ve been told time and again by oil companies that natural gas is green, is clean, is a bridge to a cleaner future, and now the biggest multilateral bank in the world says it’s not true.

Welcome to Episode 26 of The Angry Clean Energy Guy with me, Assaad Razzouk. I am going to try to explain why this decision is historic. Then put it in context in terms of global climate finance flows and tell you what we’re still missing for our clean energy transformation, why we’re missing this finance and what to do about it.

EUROPEAN INVESTMENT BANK / GLOBAL CLIMATE FINANCE FLOWS

Okay, let’s start with the basics. Natural gas leaks methane throughout its entire industrial process.

It leaks methane when you extract it from the ground, it then leaks methane when you process it, when you transport it, when you ship it, and then when you use it. And methane levels are up a huge 50% in the last five years and are destroying the Paris climate agreement with leakage from natural gas at 4.1% meaning that actually using natural gas is worse than using coal.

And that’s a fact.

And it’s because the United States has a massive 1.2 million oil and gas wells.

1.2 million.

That’s one oil and gas well for every 270 Americans.

And if that’s not enough, check out how natural gas destroys our precious water resources to provide electricity to an average home. A nuclear power plant uses up 615 gallons of cooling water a day. A coal-fired power plant uses 200 and a natural-gas fired power plant uses 114 gallons of cooling water a day. Then add the water that you need to actually frack the earth to get the gas out and natural gas comes out using up more water than even nuclear power plants.

Contrast that with solar and wind, which use none. No water.

But let’s come back to the European Investment Bank for a minute. It’s the bank that lends the most money in the entire world, even more than the World Bank. And so it’s energy choices matter. They can actually help us get on the right path to fight climate change and lead a transition to clean energy-fuelled lifestyles.

And nothing applies better to the climate fight than the saying “better late than never” because every step each one of us takes, and some of us like the European Investment Bank have a lot more weight, each step each one of us takes affects how much warming everyone on the planet is going to suffer from. And clearly if the planet warms by three degrees instead of three and a half degrees, we’re better off even though most of us will be frying.

The European Investment Bank was far from being a climate leader, actually quite the opposite. It was lending more than 12 billion Euros to fossil fuels in just the last four years and that’s not all of it. It was also financing climate-wrecking projects indirectly with another 4 billion Euros of loans to companies that were coal-dependent. And as recently as last year, it put in 2.4 billion Euros into one of the most expensive and controversial infrastructure projects of all times, which is called the Southern Gas Corridor, an initiative to ship natural gas from the Caspian and from the Middle East to Europe by building basically lots and lots and lots of pipelines that leak natural gas.

It wasn’t just the European Investment Bank, they were all in on it.

The Southern Gas Corridor was also financed by the World Bank, by the Asian Development Bank, by the European Bank for Reconstruction and Development or EBRD, by the Asia Infrastructure Investment Bank.

All of them were in on it.

And the climate consequences of these investments were and are disastrous. We know that. They know that. Everybody knows that. Everybody that bothers to look into it actually knows that.

A recent report for example showed that for each dollar invested in those pipelines, there will be a global climate damage of $13. So you put in a billion dollars, the damage is 13 billion dollars. $13 of damage for each dollar invested and there you have it: The European Investment Bank’s decision to drop natural gas on top of what’s fashionable these days, which is to stop financing coal, is historic and matters greatly and to understand why, I am going to put it in context for you.

I’ve been a fan of Barbara Buchner’s work at the Climate Policy Initiative for many years.

Barbara and her team painstakingly put together every two years a bottom-up analysis of all the global climate finance flows and their report for 2018 and 2017 was published about a week ago and here is what it says.

Number one, we need to invest $1.6 trillion each year into our energy transition, but we’re investing $546 billion, so we’re short $1 trillion a year. That’s how much we are under-investing in terms of what we need to invest in order not to fry.

The report also shows that, by and large, public finance institutions and development finance institutions like the European Investment Bank, like the World Bank are doing what they can. These provide about half of total climate finance and frankly it’s not difficult to see that they’re operating near their maximum capacity.

The European Investment Bank’s move to ban lending to oil, gas, and coal since that report has been published really fits into that trend. Public finance institutions, you know those that governments tell them what to do, are doing what they can.

Now who’s not? The private sector is the one not doing what it can.

You can divide the private sector into three pots of money. You’ve got corporations, you’ve got the capital markets, and you’ve got households, so citizens, you and me.

Households are doing fantastically well. They’ve put $60 billion into the energy transition by buying electric cars, electric boilers, and putting a rooftop solar on their homes.

Corporations are actually also not doing that badly. Companies like Apple and Ikea and many others have invested $172 billion into the energy transition last year. That’s great.

The ones that are not pulling their weight in any shape or form are the banks and the capital markets.

The banks are actually quite terrible. They’ve invested $70 billion into the energy transition, but they have lent 10 times that amount, $650 billion to oil, gas, and coal, and they are still at it.

And in a development that should be a surprise to nobody, the Climate Policy Initiative’s report shows that institutional investors are completely missing in action.

Out of the $150 trillion that they control, they account for a ridiculous $16 billion of total climate finance flows in 2018. So that’s $16 billion out of the $546 billion invested, which itself is a trillion dollar short. So they’re investing 2.9%.  The $150 trillion capital markets are essentially completely missing in action.

So that’s the context of global climate finance flows that we should see the European Investment Bank’s move within.

The European Investment Bank’s move is one more, possibly the almost final, nail in the coffin of coal, but much, much more importantly because coal is done anyway, the European Investment Bank’s move is the critical first and second and third nail in the coffin of gas.

And now that they’ve moved, expect the World Bank to follow.

Expect the International Finance Corporation to follow.

Expect the Asian Development Bank, the Asia Infrastructure Investment Bank, the Latin American Development Bank, the African Development Bank, the EBRD, and all the other development finance institutions to follow, because they will.  The EIB, the European Investment Bank leads the way and the others will follow. And in any case, as I argued before, the public finance institutions are not the main problem.

The main problem is the capital markets who are still gingerly financing complete planetary destruction. The capital markets have lavished $5 trillion of debt on the oil and gas sector between 2010 and 2018. I mean that’s a huge number. You can’t even conceptualize it. And it’s gone into gas infrastructure and oil infrastructure and basically everything that we don’t need and we cannot afford.

What we need today is we need to focus on these capital and credit markets because they need to stop financing oil and gas and coal and not just make noises about it, but how do we go about that? What do we do about it?

I’ve presented solutions in many of my published articles and some of my previous podcasts and essentially it comes down to this:

We can’t rely on governments to legislate. At least we can’t rely on them too much because their track record over the past 40 years is clear. So that’s number one.

Number two, we can’t really rely on carbon taxes or carbon markets because these have been consistently gamed by Big Oil and the banks who are continuing to game them. They essentially are a mechanism for them to make even more money instead of being a mechanism for them to stop doing what they’re doing.

So that leaves us with two credible levers: You have one, the courts and two, you’ve got the public.

Now what can the courts do? Here I am going to sound like a broken record.

I’m afraid the courts will find that fiduciaries, that is people managing money for others, are not doing their job because they are not pricing climate risks in their investment decisions. Now the wheels of justice may be slow, but the courts will find that all these institutional investors and fund managers and pension fund managers and pension trustees are not doing their job and that alone should move the capital markets. As I explained in a TEDx talk that I gave, the reason that’s what the courts will find is because Big Oil have lied and obfuscated for almost 40 years and therefore delayed climate action in all its forms, whether that’s decreasing emissions or investing in research and development to find alternatives. They have not only slowed us down, they have derailed us for 40 years and so the courts will look into these facts and we’ll find them guilty and then the cost of capital for oil and gas will go up.

In addition to that, I think the courts will find that directors of public companies are liable for environmental destruction and what you’ll see more of is you’ll see more listed companies being delisted because what they’re doing is an existential threat. This sounds radical at the moment, but the radical in the climate change space has a clear track record of becoming the normal and so it will become normal within two, three, four, five years for stock exchanges to delist businesses that destroy the environment. To illustrate my point about how what’s radical is the norm pretty quickly in this space: It’s very hard to remember the days when Greta Thunberg was an obscure Swedish school student or the days when Alexandria Ocasio-Cortez was a little known activists or the days when Extinction Rebellion had yet to disrupt the commute of workers around the world. But that was only one year ago.

It was only one year ago that we did not know Greta Thunberg that we did not know Alexandria Ocasio-Cortez and that we did not know Extinction Rebellion.

And so remember, the European Investment Bank’s decision is cataclysmic, as I said at the beginning of this podcast, because in effect they have declared that natural gas is already a stranded asset.

I’m going to read you a quote from their justification of the move. They said “from both a policy and from a banking perspective, it makes no sense for us to continue to invest in 20 to 25 year assets that are going to be taken over by new technologies and do not deliver on the EU’s very ambitious climate and energy targets”.

What this means is that until now, lenders looked at natural gas as clean or green or as a critical bridge fuel, fed lies by Big Oil. However, what the EIB is saying is that gas will also be a stranded asset along with coal. Now this therefore will allow climate activists to launch lawsuits against private sector lenders that don’t follow, so expect that to be a trend over the next two to three years. Because if lending to the gas sector is a breach of fiduciary duty, given the potential future losses that the European Investment Bank now has highlighted, then surely that needs to stop and we’ve seen that pattern play out in the coal sector: Very recently, a state owned Polish energy group was stopped from opening a new coal fired power plant because the judge decided that it was not economically viable in the face of rising carbon and falling renewable prices.

And it’s the same thing with gas. Private sector institutions, whether they’re fund managers or pension funds or private equity firms, have a legal obligation to consider material risks and that includes stranded assets. And now the European Investment Bank has shouted from the roofs that natural gas is a stranded asset. So if all these people fail to inform themselves of these risks, it’s inevitable that litigation will follow.

And my guess is that we are no more than two to three years away from this tsunami of climate lawsuits on private sector actors. And in Episode 19 of The Angry Clean Energy Guy, if you want to refer back to that, I gave an overview of where climate litigation stands around the world and developments that can be expected.

So the levers that we have left are one, the courts, but two and critically importantly the public: Citizens, us, you and me. We also have a critical role to play. Keep putting pressure on corporations and pension funds to do the right thing. We all need to be climate activists.

Consider taking just one climate action each day. Just one. It matters and it will make a huge difference and here is one critical action that many of you can take and that can move mountains: Write to your pension plan and tell them that you want your money in responsible funds and not in funds loaded with fossil fuels or tracker funds where the blind basically is leading the blind.

All of us can do one thing that matters every day and act as climate activists in our daily routines and our daily lives.

And finally, the most important thing all of us can probably do is to vote. There is probably nothing more important. Vote climate and vote out people and governments and politicians that are stopping climate action.

Thank you so much for listening to me this far. It’s been Episode 26 of The Angry Clean Energy Guy with me, Assaad Razzouk. Remember transcripts of all my episodes are on my website, https://theangrycleanenergyguy.com/

VILLAIN OF THE WEEK

My villain of the week is Saudi Aramco that I featured in Episode 22 which was about its IPO and the reason it’s my Villain of the Week is because they have been clearly wasting everybody’s time because it ended up that their IPO was one without a purpose.

They finally decided to cut back on their London and U.S. roadshows because they could not get the valuation that they wanted. But as I argued in Episode 22 which I think I taped all the way back in September, that was always clear: It was always clear that they were not going to get the valuation that they wanted, and it was always clear that institutional investors, global investors, were not going to follow the dictates of the crown Prince of Saudi Arabia and just give him whatever number he had decided on the back of the envelope that his company was worth.

HERO OF THE WEEK

My Hero of the Week, by contrast, is showing the rest of the world what must be done and how to do it.

Prime minister Jacinda Arden of New Zealand is awesome. New Zealand recently passed a law to reduce carbon emissions to pretty much zero by 2050, to go a hundred percent renewables by 2035,  to plant 1 billion trees and to invest $14.5 billion dollars into transit, biking, and walking infrastructure. And that’s why she is my Hero of the Week. All these steps are obvious and all of them can be taken by most countries around the world. So for the rest of you, what are you waiting for?

Thanks again everyone and have a great couple of weeks.