Decarbonizzare i combustibili fossili

Decarbonizing fossil fuels

This is the first step towards energy transition; a realistic first target for a world in severe economic difficulty that needs to find trillions in long-term investments for a global low-carbon process.

by Ian Bremmer
30 April 2021
9 min read
by Ian Bremmer
30 April 2021
9 min read

The global energy transition faced daunting challenges even before Covid-19 thrust the world into survival mode. De-carbonizing the world requires trillions in long-term investment from governments, companies and consumers alike, trillions that become even more painful in the context of our current global economic downturn. Factor in that fossil fuels also continue to generate significant amounts of taxes for governments - revenues that help balance budgets and fund public programs like welfare and unemployment benefits, which are absolutely critical these days - and governments now have even more reason to push de-carbonization efforts further down the priority list. Meanwhile, the world continues to burn.

A key lesson of the pandemic: pragmatism

While the science has finally gotten to the point where we can begin planning for our green energy future, our political and socioeconomic systems are not there yet. This is particularly true of the world’s democracies, where voters are consistently animated more by short-term concerns that affect their personal lives than longer-term worries that impact the entire world. If we are being honest about it - and it’s high time we are - ambitious climate goals like the ones established in the Paris Agreement require serious disruption to the personal lives of voters, more than it is realistic for us to expect politicians looking to get reelected can successfully enact, let alone build long-term public policy around. One of the key lessons we need to take away from our current pandemic is that we must be pragmatic about what governments can and cannot do in the face of global emergencies, and anticipate those limitations as much as possible as we work around them. To that end, the world needs to start putting many more resources not just toward carbon-free technologies like solar or wind, but also towards increasing the efficiency of fossil fuels we will inevitably continue to use in the decades ahead.
That is not the direction the investment enthusiasm of recent years had been pointing. Prior to the pandemic, environment, social and corporate governance (ESG) investment strategies had been increasingly framed in the line of “divestment” from fossil fuels rather than a “strategic usage” of them. Some investors turned away completely from oil and gas companies so they could send a message about their values; others just did not see the diminishing profit margins as worth the effort and risk. Recent years had seen the rise of investors looking to simply divest of their fossil-fuel holdings; between 2014 and 2018, the number of institutional investors who had vowed to divest from fossil fuels had skyrocketed from $52 billion to $6 trillion in terms of assets under management. While their intentions are admirable, in practice they complicate the transition picture tremendously; rather than starving oil and gas companies of funds, we need them invested and innovating at the highest level possible to continue shrinking the carbon footprint of fossil fuels while the energy transition remains underway. It’s a tall task, and Covid-19 only made matters worse, as energy investment through Q3 of 2020 had been projected to fall by an unprecedented 18 percent year-over-year. To be sure, the fall in energy investment cannot and should not be attributed solely to Covid-19, or even just to environmentally conscious investors. Oil and gas companies have been taking significant write-downs in recent years, a signal they themselves expect less profitable futures ahead, which makes sense in the context of a world actively trying to decarbonize. Fewer guaranteed returns, wild swings in oil and gas prices, and general uncertainty over both supply and demand given the looming energy transition all dimmed economic prospects for these companies compared to returns of recent decades. And while all these structural challenges continue to persist, the reality is that there are still billions of profits to be made in the interim for oil and gas companies, even more over the long run if their investments are channeled strategically and proactively towards cleaner energy solutions as well. Whether they like it or not, oil and gas companies are a critical component of solving the climate change puzzle, and investors need to support them in that pursuit.


The urgency of the battle mitigated by health and economic crises

Covid-19 of course complicates those efforts in multiple ways. The sustained challenges posed on both the economic and health fronts by Covid-19 will necessarily push back the immediate urgency of the climate change battle for governments, companies and consumers alike in the world’s advanced industrial democracies. Even more concerning though is what happens to lower and middle-income countries, the ones who are already bearing a disproportionate amount of the hardship brought by the pandemic. These are the countries that have less healthcare capacity to deal with the ongoing health crisis, and the least amount of money to procure the vaccines that are their tickets out of it. These are also the countries that have less resources to stand their economies back up via stimulus once the worst of the crisis is past. For many of these countries, the further additional costs required of “green” stimulus is a non-starter, even as emissions levels have vaulted back above pre-pandemic levels in recent months. When all is said and done, there will be some cash-strapped countries facing serious debt crises as a result of the global economic tumult, and not necessarily through any fault of their own. For countries like these, using cheap fossil fuels won’t be a choice, but a necessity.
To help fight climate change today - and to maximize the long-term impact of those efforts - ESG investments need to also be investing in the difficult to de-carbonize sectors of oil and gas to make them more efficient while they still remain relatively cheap options for consumers, and while entire industries like shipping and aviation struggle with the logistics of transitioning to renewable fuel sources. Failure to do so will mean investors will fail to capture millions in potential profits - they will also fail to make the energy transition as efficient as possibly. To be sure, leapfrogging to renewable resources makes intuitive sense over the long term, but it severely constrains the short and medium term, which is where most of the damage to the environment will still be done. We need to begin moving away from this conception of our energy transition being “either-or.” Acknowledging that doesn’t just make financial sense, but practical sense too given the current realities of our politics and economics.
In recent years, traditional oil and gas companies have been making progress on ESG through their own investments, though how successful they will ultimately be will likely be determined by how much others invest and support these initiatives. Yet more actors must play active roles as well - any successful global energy transition needs a comprehensive multilateral policy framework. Just as critically, more government policy is needed on domestic fronts as well to align the short -, medium - and long - term social interests with market ones, all within the context of the looming climate change threat. After four years of a Donald Trump administration that largely ignored climate change concerns (to put it charitably), the US finally has the political leadership in place under President Joe Biden to give the issue the kind of attention and resources it deserves. Having the globe’s largest economy rowing in the same direction as everyone else when it comes to climate change gives the world a much better chance of success in mitigating global warming’s worst effects. And while there will be plenty of detractors arguing that short-term economic concerns shouldn’t be sacrificed for the sake of long-term environmental ones, this is a false choice—if the energy transition already underway hits the rocks, that will impact not just energy-related companies and consumers, but also banks given the trillions they have already invested in those companies, which in turn will hit the rest of the economy. In a world as interconnected as ours, problems in one area of our economy frequently spill into others; that requires more government involvement than what we’ve been accustomed to seeing.

An orderly and slower transition

All of which leads us to the following conclusion: More decarbonization efforts (and dollars) must be spent on existing fossil fuels, already difficult under normal circumstances and the direction ESG enthusiasm was pointing, but now critical as the world begins the recovery process from the pandemic. Any green energy transition will have to be orderly, and slower than the one science dictates and the technology currently enables given the very real social and economic costs that the pandemic has extracted. Covid-19 has complicated our global energy transition; now is the time to strategically invest to make our green energy journey as practical as possible going forward to make it a success, and to ensure we end up at the sustainable energy future the world demands of us. 

The author: Ian Bremmer

President of the Eurasia Group and GZERO Media, and author of US vs Them: The Failure of Globalism, a New York Time bestseller published in Italy with the title of We against Them (Bocconi University Publisher, 2018).