Rachel Stewart

Industry anger with Govt baseless given global shift away from fossil fuels

Idon’t know which is more laughable. The Opposition’s wilful ignorance of why fossil fuels need to stay in the ground, or the oil and gas industry’s plaintive cries about not being consulted by the Government on the halting of offshore permits?

The National Party’s default position has been to accuse the Government of economic ignorance, while also trying hard to claim that the Block Offer decision had nothing at all to do with the Paris Agreement.

Bottom line? The world has to wean itself off fossil fuels. This is not some lovely aspiration; it’s a nonnegotiable fact. The Government’s move is more about price signalling than virtue signalling.

In his speech to Lloyds of London in 2015, Mark Carney, Governor of the Bank of England and chairman of the G20’s Financial Stability Board, quoted two-thirds to 80 per cent of existing fossil fuel reserves — meaning they’re valued on company balance sheets — are literally unburnable if we’re to stay within the target of 2C.

These are not random figures Carney plucked from the ether. They’re anchored on the work of an international group of climate scientists based in Oxford, including New Zealand’s own David Frame, which calculated the total carbon budget consistent with 2C — in other words, the total amount of carbon that humanity can afford to emit and stay within the 2C envelope.

Because of this, financial regulators like Carney are petrified of a whole new era of financial system instability as all those unburnable reserves get revalued downwards on company balance sheets, and possibly very suddenly. Think Global Financial Crisis Mark II. This is an active, ongoing focus for global financial regulators because they know the risk involved, and what’s at stake.

Long-term fund managers — especially those that have very long horizons because they look after trillions of dollars of other people’s retirement savings — are increasingly demanding that Big Oil declare their “carbon risk” (unburnable carbon reserves on their books) and show how they are planning to make the transition to a carbon-constrained world.

For instance, last year socially responsible fund managers locked arms with big mainstream investors like BlackRock and Vanguard to win a major resolution at the Exxon Mobil AGM. Shell and BP have also found themselves subject to big shareholder resolutions demanding that they demonstrate how they’re going to function and remain profitable in a carbon-constrained world. Even the New Zealand Super Fund, under the guidance of Adrian Orr, got completely on board — hence their divestment of a heap of fossil fuelexposed stocks in 2017.

Add to the mix the World Bank announcing late last year that they’re ending their financial support for oil and gas extraction, and any fool can clearly see the trend. The bank said it saw the need to change the way it was operating in a “rapidly changing world”, adding that it was on course to have 28 per cent of its lending going to climate action by 2020.

So, given all of this, why would any conscientious, financially literate government spend even one second of their time running tenders inviting petrochemical companies to enter our waters to search for more of the stuff? Particularly when the world already has five times more known fossil fuels than can be safely burned without rendering the climate incompatible with human civilisation.

It’s true the government decision won’t make any measurable shortterm difference to total emissions. But it’s all about a direction of travel for investment flows, and about financial risk management. Why lock in further reliance on fossil fuels — more jobs and infrastructure — that are likely to be left stranded as the world shifts away from them? Far better to strongly signal we are serious about the transition, so that the moolah starts flowing into other parts of the economy, including renewables.

As for the Screaming Meemees within the oil and gas industry, feigning upset about “not being consulted”, the question is this. How did they not know this was coming? Are they living in an oil slick so thick they can’t make out the writing on the wall? And, anyway, at what level do they think they should be consulted? Have they consulted with your kids about their bleak and hot future? Nah, didn’t think so.

And let’s not forget who New Zealand Oil & Gas is. They were a driving force in the creation of Pike River Mine, and still owned a third when it exploded. In 2013, 99 per cent of NZOG shareholders voted against a payout of $3.4 million in reparations to the families of the miners killed.

In the end, one doesn’t have to be a rabid greenie to see the logic in not continuing to invite and subsidise Big Oil to explore our waters. To keep doing so would be like luring and subsidising Kodak, at the dawn of the digital age, to come here and set up factories manufacturing 35mm film.

Not a pretty picture. Rachel Stewart on Twitter: @RFStew