On what was the 50th annual World Economic Forum in Davos, Switzerland, the climate crisis dominated the narrative. Concerns about the environment filled the top five places of the Forum’s annual risks report for the first time in its history.
Greta Thunberg, the Swedish climate change activist, took top billing alongside US President Donald Trump, and the WEF asked all companies present to commit to net zero carbon emissions by 2050. Thunberg gripped the 3,000 delegates before and after the US President, who labelled her and like-minded individuals as alarmists. Even the US Treasury Secretary Steven Mnuchin told Thunberg to go study economics in university first and come back to explain policy when she graduates.
As one global energy chief executive told me after the public display of policy polarization, “This is not helping to address climate change”.
The world seems to have hit a dangerous fork in the road. Despite billions of dollars being invested in renewable energy every year, carbon emissions rose in 2018 and are expected to have done so again last year.
“Panicking and protesting is not fully cutting it,” said Joe Kaeser, Chief Executive of Siemens. “We need to find solutions. How do we get there in a world that has brought hundreds of millions of people out of poverty, which is raising energy demand?”
Just under one billion people still do not have access to electricity, demand for power is expected to double by 2050, and the Paris Climate Agreement is designed to cap global warming to below 2 degrees centigrade if not lower. That is the energy conundrum the world faces today and why CNN convened the “Global Energy Challenge” roundtable at the WEF that included energy CEOs, an environmental policy leader and the International Energy Agency.
Need to start somewhere
A good place to start is by displacing coal with cleaner burning natural gas. In 2018, coal was the energy sector’s biggest carbon emitter, accounting for about a third of global emissions.
“Coal in Asia is the problem - it’s not even coal everywhere else,” said Christiana Figueres, former UN climate chief and founding partner of Global Optimism, an enterprise focused on social and environmental change. “Getting coal out of the (electric) grids is the number 1, 2 and 3 priority.”
Perhaps the best barometer in the energy sector itself is to follow the money trail. Of the nearly $2 trillion spent on overall energy investment in 2018, $355 billion went into solar and wind power generation, battery storage and nuclear power, according to the Paris-based IEA’s 2019 world investment report.
This still failed to match the nearly $800 billion still going into oil and gas exploration and production.
Energy providers are having to adapt to this changing landscape. But will there still be a place for fossil fuels in a world that must reduce carbon emissions?
Amin Nasser, President and CEO of the world’s largest oil exporter, Saudi Aramco, believes that even in 20 years, demand for oil will continue at its current level of around 100 million barrels a day.
Citing a growing global population and a rising emerging middle class he said “There will be more demand - the only way you can meet it is to continue to provide affordable, reliable, ample energy to the rest of the world. It will take a lot of work between traditional energy sources and alternatives, renewables - you need both together to meet the future demand.”
But Fatih Birol, executive director of the International Energy Agency, said the expertise of oil and gas companies could play a huge role in the transition to clean energy. “Looking at Aramco, Siemens, many companies who are here, they have all the skills, all the engineering knowledge to run large-scale projects. Why don’t we get them on board and make them part of the solution?”
For the energy sector, there is a confluence of pressures. There’s the concern that demand for oil may be near its peak, and that the world’s institutional funds are focusing more on ESG - environment, social and governance - to drive their investment decisions.
The market-cap of oil and gas companies in America’s S&P 500 has been cut in half over the last decade, as institutional investors move out of hydrocarbons due to the threat to the industry posed by climate change. Ultimately, it will be the ability to use all the technologies available and moving at a more rapid pace that will help to meet the energy challenges of the future.
“For me it calls for a grand coalition of governments, energy companies, investors and the citizens who are genuinely interested in tackling climate change,” said Birol of the IEA.
In other words, having Thunberg on one side carrying the torch on behalf of the climate activists and Trump pushing back as the so-called “climate denier” will not foster what those at the CNN roundtable all agreed needs to be a well-managed transition.
- John Defterios is CNN Business Emerging Markets Editor.