Special Report ESG: Carbon Risk, Not a binary choice

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Some of the great divestment debates of the past benefited from addressing issues to which there was no conceivable upside: there was no such thing as fair apartheid, just as there is no such thing as healthy tobacco use. Hence ethical choices on those issues could be reduced to a binary choice. You either invest in apartheid or tobacco or you don’t. There is no way to exert pressure on fundholders to press for a ‘benign apartheid’ or ‘healthy smoking’. So if a clean conscience is your priority, divestment from such things is a no-brainer.

But what about fossil fuels? The proponents of divestment from fossil fuels present the issue as if it also is a simple, binary ethical choice; they argue that if you continue to invest in fossil fuels, you are investing in global warming and its many anticipated negative consequences. 

That argument has some merit as far as it goes – notwithstanding the ancillary issues it raises over the certainty with which global warming and its consequences can be reliably predicted. But, in reality, the ethics of fossil fuel use are far more complicated than this simple reading would have you believe. 

For a start, the development of fossil fuels has lifted entire nations out of poverty – most recently China, where 750m people have climbed above the poverty line in the past decade and a half on the back of coal use. Of course, coal use has negative environmental impacts – not least on urban air quality – which the Chinese government is now becoming a world leader in addressing. But alleviation of poverty on that scale cannot lightly be dismissed as of no ethical consequence. Similarly, previously desperate countries such as Angola are now building major infrastructure, to the benefit of their populations, on the back of offshore oil and gas. 

These developments are but the modern-day manifestations of a long historical process of fossil-fuelled economic development. The first step was taken by Queen Elizabeth I of England in the late 16th Century, when she liberated the coal trade in her realm in response to the rapid exhaustion of biomass (or ‘forests’ as it was then known) by rising demand for fuel and structural timber. The result was a booming economy in the vicinity of Newcastle upon Tyne, the world’s first fossil fuel capital, where the legacy of past fossil fuel wealth still contributes to the regional economy. 

Then we have the 20th century history of Oklahoma – first gaining the economic clout to merit statehood around the turn of the century, then lifted from the dust bowl depression to proud prosperity through the Second World War and again in the late 1970s and 1980s, all due to exploitation of the rich oil reserves of the Anadarko Basin.  Many other examples could be given.

So fossil fuels have long been, and remain, a major contributor to the wealth of nations and individuals. At the most micro scale, fossil fuels are also a front-line defence against fuel poverty in northern European countries. In Scotland, for instance, households without a connection to the gas grid are three times more likely to be in fuel poverty (that is, spending more than 10% of their income on keeping warm) than those with a connection. 

Of course, runaway climate change might well undo much of the poverty alleviation that fossil fuel use previously yielded – but does it make sense to ask the poor of today to remain in penury while we in the global north continue to consume more than our fair share of hydrocarbons?

This leads to the wider issue of alternatives. The divestment lobby often appears to believe that we already have viable alternatives for all fossil fuel use, readily available at full scale. However, there is a very long list of processes and products for which this is simply not the case – and may not be the case for many decades, short of some unforeseeable miracles. Here is a brief and by no mean exhaustive list of commodities for which we presently have no alternatives to fossil fuels at anything like the required scale:

• Production of fertilisers, upon which most of the world’s food supply is based; 

• Manufacture of steel which, as an alloy of iron and carbon, actually needs coal use to achieve its very nature;

• Synthesis of plastics and other similar organic materials which are the mainstay of so many consumer goods – including the strong but lightweight carbon-fibre blades of modern wind turbines, and emerging variants of thin-film photovoltaic technology;

• Mass production of many pharmaceuticals;

• Production of cement for the construction industry;

• Delivery of electrical power to meet demand (load-tracking) – something that the variable output of the majority of renewables simply cannot do;

• Transport fuels, especially for heavy trans-ocean transport by sea and air.

The divestment advocates routinely ignore this list, and focus solely on the use of fossil fuels to produce electricity. Yet in many countries (and certainly in my own) electricity is the most minor component of total energy use. In Scotland, electricity use, at less than 20% of all energy consumed, is dwarfed by heating (55%) and transport fuels (25%). So far, we have reliable renewable sources for only about a third of electricity, and almost no renewable sources for the rest.

But is it not simply a counsel of despair to argue for perpetuation of the ‘technology lock-in’ which current fossil fuel use represents? No. Until we find alternatives for the myriad commodities listed above, our best hope for balancing environmental responsibility with sustained prosperity – and indeed further alleviation of poverty – is to sever the link between fossil fuel use and greenhouse gas emissions. 

There are a number of emerging alternatives for this, of which carbon capture and storage (CCS) is the most advanced. Contrary to what you may have read in the pro-divestment propaganda, all components of CCS already exist, and – as of November 2014 – they are all now being used at full-scale, without public subsidy, at the Boundary Dam lignite-fired power station in Saskatchewan, Canada. 

It is the fossil fuel companies that have the vital (usually proprietary) technologies and skills that are beginning to deliver CCS and allied technologies. We should be using investor influence to greatly encourage those companies that are most committed to technology transfer to minimise greenhouse gas emissions per unit of fossil fuel used. To divest and stand yelling from the sidelines may feel good but, given the lack of viable alternatives, it is ultimately a self-righteous abdication of our shared responsibility to become good ancestors. 

Paul Younger, FREng, holds the Rankine Chair at the University of Glasgow, where he is professor of energy engineering. He is also a non-executive founding director of two energy companies – one developing renewables in East Africa, the other developing a novel technology for carbon-neutral extraction of chemicals from coal seams deep beneath the sea bed. He is the author of Energy: All That Matters (Hodder/John Murray, 2014).

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