Energy companies are facing the prospect of physical and financial losses because of climate change, and the oil industry needs to take the threat more seriously, the chief economist of the International Energy Agency said Friday.
“When there is global warming, this will result in much more frequent cyclones, floods and storms,” Fatih Birol told FuelFix. “And this will affect the infrastructure of energy companies — we think especially for the offshore oil and gas production, in the North Sea, Western Australia, the Gulf of Mexico.”
The implications of climate change will extend beyond direct physical damage, Birol said.
“Even if there was no storm or anything happening, companies have to increase the resilience of the infrastructure, which in turn means that the cost of capital will go up,” he said. “So the energy companies, even if they don’t want to solve the problem, they cannot afford to ignore climate change being part of their decision-making for their investment strategies.”
Birol spoke with FuelFix following a report the Paris-based agency released this week warning that the world is not on track to prevent a dangerous increase in global temperatures — and that energy companies are key players.
“About two-thirds of the global emissions come from the energy sector, so if the energy companies and governments do not move, it will be impossible to address the problem,” Birol said.
World governments, including those of leading polluters China and the United States, have agreed that to avoid harmful environmental consequences, they need to prevent global temperatures from rising more than an average of 2 degrees Celsius — 3.6 degrees Fahrenheit — from pre-industrial levels.
But governments and companies have not taken enough concrete action to curb emissions, setting the world on a pace to increase temperatures as much as 9.54 degrees Fahrenheit.
While some energy companies have been proactive in advancing efforts that would cut emissions, many have not been as aggressive as they need to be, Birol said.
The agency recommended four adjustments it said would put the world back on track to the 2-degree target, including improvements in the energy efficiency of buildings, which would account for half of the needed changes. Other proposed changes include reductions in methane emissions from oil and gas operations, the removal of fossil fuel subsidies in some countries and limiting the use of inefficient coal-fired power plants.The agency said those measures would have no net economic cost and would cut greenhouse gas emissions by 3.1 gigatons, or 80 percent of the reduction required to achieve the 3.6-degree limit on temperature growth.
“Delaying stronger climate action to 2020 would come at a cost: $1.5 trillion in low-carbon investments are avoided before 2020, but $5 trillion in additional investments would be required thereafter to get back on track,” the agency said.
The oil industry’s lobbying group, the American Petroleum Institute, argued that oil and gas companies are “leading the way in lowering carbon emissions” in the United States because of the growing use of natural gas, which emits less carbon dioxide than other fossil fuels.
The lobbying group said that in the last decade the industry invested $71 billion in reducing greenhouse gas emissions.
The International Energy Agency report, called “Redrawing the Energy-Climate Map,” acknowledged that the increased use of cheap natural gas in the United States has helped to push the nation’s greenhouse gas emissions to their lowest levels since the mid-1990s.
But those changes could be temporary if natural gas prices change and coal becomes more attractive, Birol said.
U.S. natural gas fell 8.1 cents to $3.733 per million British thermal units in Friday trading on the New York Mercantile Exchange.
“According to our analysis, if (natural gas) comes to $5 we may see coal make a comeback,” Birol said. “If this is not an outcome that the administration wants to see then maybe it needs to look at regulations, especially for the inefficient coal fired power plants.”
Birol also called for even more aggressive vehicle efficiency standards than the most recent U.S. government requirement that carmakers achieve an average of 54.5 miles per gallon in their vehicles by 2025.
“If we cannot limit the increase in the global temperature to 2 degrees (Celsius), we will have a completely different challenge,” Birol said. “People who work for the oil companies, people who work for organizations, newspapers, they will all be affected as people.”
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