The smart money

3rd October 2014

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Gregg Taylor

News that the Rockerfellers are moving investments out of fossil fuels adds momentum to analysts' warnings that investments by the oil and coal industry in new reserves are not financially viable, Paul Suff argues.

The irony of the Rockefeller Brothers Fund, which was built on oil money, divesting from fossil fuels will not be lost on environmentalists.

But it’s a sign of the times. Increasingly individuals and institutions are moving their money out of stocks in oil and coal companies. Ahead of the UN climate summit last month, the global Divest–Invest coalition announced that more than 800 investors – including the heirs to the Rockefeller fortune – had pledged to switch funds totalling $50 billion from fossil fuels to clean energy technologies.

In a statement, Stephen Heintz, an heir of Standard Oil tycoon John D Rockefeller, said: “We are quite convinced that, if he were alive today, as an astute businessman looking out to the future, he would be moving out of fossil fuels and investing in clean, renewable energy.”

And there’s the nub of the argument: more money is likely to be made in the future from sustainable energy sources than from dirty, polluting fossil fuels.

Analysts are increasingly sceptical that investments by the oil and coal industry in new reserves are financially viable. Risk experts at the Carbon Tracker Initiative warned ExxonMobil recently that its relatively poor stock market performance reflects its choice to invest more in capital-intensive, high-carbon projects, including tar sands, heavy oil and Arctic developments.

The initiative says that in 2007, such projects accounted for 7.5% of ExxonMobil’s proven gas and oil reserves and around 15% of its liquid reserves, but that by the end of 2013 these had risen to 17% and 32% respectively.

In 2012, Australian listed companies spent an estimated AU$6 billion on developing more coal reserves. Yet research by the Smith School of Enterprise and Environment at the University of Oxford has warned that China’s changing policy on coal – it recently announced a ban on coal imports with an ash content higher than 40% and sulphur content higher than 3% in an effort to improve air quality in the country – will put coal assets in Australia increasingly at risk.

It concluded: “China’s coal demand patterns are changing as a result of environment-related factors and consequently less coal will be consumed than is currently expected by many owners and operators of [Australian] coal assets … This would result in coal assets under development becoming stranded or operating mines only covering their marginal costs and subsequently failing to provide a sufficient return on investment.”

As the world edges closer to busting the carbon “budget” required to keep global temperature rise below the important 2°C threshold, more stringent regulation will be introduced to curb greenhouse-gas emissions, leaving many fossil fuel reserves untapped. That’s why the smart money is going elsewhere.

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