Report: Oil price crash stalls more than $100bn of fossil fuel investment
Research on behalf of the Financial Times shows oil majors have shelved or delayed 26 schemes, including nine tar sands projects
By Jessica Shankleman | 19 May 2015
Tar sands in Canada
Oil majors have put more than $100bn of investment in new projects on ice in response to the plunge in oil price, new analysis by consultancy Rystad Energy revealed today.
The study, commissioned by The Financial Times, shows that 26 projects in 13 countries have been delayed or axed since oil prices started to tumble last year, including nine Canadian tar sands schemes.
The revelation follows warnings from analysts such as the Carbon Tracker Initiative that capital and carbon intensive projects such as tar sands developments and deep sea drilling operations will struggle to turn a profit if oil prices remain low.
The price of oil crashed to $45 per barrel in January from a high of $115 in June 2014 as a result of surging output of US shale oil and lower than expected demand in Asia. The downward trend in prices was further accelerated by the decision of the Organization of the Petroleum Exporting Countries (Opec), led by Saudi Arabia, to resist calls for it to curb supplies in a bid to protect prices.
As a result, companies such as Royal Dutch Shell, BP and Statoil have been forced to shelve some of their costlier projects.
The analysis shows that at least $118bn of investment has been hit, which is likely to delay future production by as much as 1.5 million barrels per day. This in turn could lead to a substantial rebound in the price of oil, said Rystad.
The report follows a series of studies that have warned capital intensive fossil fuel projects could become stranded assets if the transition to a low carbon economy leads to tighter environmental regulations and reduced demand for fossil fuels.
The findings come after a report from the Institute for Energy Economics and Financial Analysis (IEEFA) yesterday showed how coal company stock prices have collapsed in recent years, concluding that the industry now faces a “grim outlook” as a result of tightening environmental legislation and increasing stranded asset risks.
Environmentalists say Harper administration has little chance of meeting the 2030 goal while tar sands expansion continues
By Will Nichols, 19 May 2015
Tar sands in Canada
Canada has pledged to tackle its rising carbon emissions, but environmentalists have claimed the goal is unattainable while the country continues to exploit its tar sands oil reserves.
Environment Minister Leona Aglukkaq announced late last week Canada would aim to reduce its greenhouse gas emissions by 30 per cent below 2005 levels by 2030, as part of the country’s contribution to a global carbon reduction deal that is set to be signed at the UN climate conference in Paris later this year.
The commitment falls short of the US pledge to cut emissions up to 28 per cent against 2005 levels by 2025 and the EU goal of 40 per cent emissions reductions below 1990 levels by 2030.
However, the country’s government insisted the pledge was “in line” with other major industrialised countries.
“This target is fair and ambitious, an ambitious commitment based on our national circumstances, which includes a growing population, a diversified growing economy and Canada’s position as a world leader in clean electricity generation,” Aglukkaq said.
“Achieving this ambitious goal will require actions from all levels of government and we will continue to work together, cooperatively with the provinces and the territories’ goals.”
Canada’s greenhouse gas emissions have risen steadily since 2009, when it joined the US in pledging 17 per cent reductions by 2020, mainly due to growth in tar sands oil production in the province of Alberta. Currently, Canada is only expected to get halfway to the 17 per cent goal, with Alberta alone expected to account for 40 per cent of the country’s carbon pollution by the end of the decade.
Environmentalists said that without scaling back its long-standing plans to expand tar sands production it is difficult to see how Canada will meet the new emissions goal, even given that provinces such as Ontario have announced targets far in excess of the Federal goal.
“The Harper government has not only ignored its existing reduction target, but the pro-tar sands policies it has adopted are taking us in the opposite direction,” said Keith Stewart, climate campaigner for Greenpeace Canada. “Until today’s announcement is backed by a commitment to enacting policies that can actually achieve this new target, it isn’t worth the paper it is written on.”
Canada follows the US, EU, Russia, Mexico, Switzerland, Norway, Gabon, Liechtenstein, and Andorra in officially submitting its climate action plan, or Intended National Determined Contributions in the UN parlance, to the body’s climate change secretariat in readiness for December’s Paris Summit.
Riverkeeper sues U.S. DOT over oil train safety rules
By Brian Nearing, May 18, 2015
The Hudson River environmental advocacy group Riverkeeper is challenging new U.S. Department of Transportation crude-by-rail standards in federal court, saying that they fail to protect the public and the environment from proven threats, according to a statement issued Monday.
The release states: Riverkeeper filed its lawsuit in the 2nd Circuit Court of Appeals in New York City on May 15, a little more than a week after the DOT issued a final tank car and railroad operation rule which had been the subject of scrutiny and controversy since its proposal in 2014. The suit closely follows another filed in the 9th Circuit Court of Appeals by a coalition of conservation and citizen groups that includes Earthjustice, Waterkeeper Alliance, ForestEthics and the Sierra Club.
The Hudson River and the Greater New York/New Jersey region, a thoroughfare for up to 25 percent of all crude shipments originating in the Bakken shale oil region, faces a daily risk of spills and explosions that could devastate communities, local economies, drinking water security, and the environment.
“These seriously flawed standards all but guarantee that there will be more explosive derailments, leaving people and the environment at grave risk,” Riverkeeper President Paul Gallay said. “The shortcomings are numerous, including an inadequate speed limit, unprotective tank car design, and time line that would allow these dangerous tank cars 10 more years on the rails. The DOT completely fails to recognize that we’re in the middle of a crisis – we don’t need bureaucratic half measures that are years away from implementation, we need common-sense protections today.”
Just this month, tank cars laden with crude oil derailed and exploded in Heimdal, North Dakota. Under the new DOT standards, the same type of cars that exploded in that disaster could stay in service hauling volatile crude oil for another five to eight years, or even indefinitely if they are used for tar sands.
Over the past several years, a series of fiery derailments, toxic spills, and explosions involving volatile crude and ethanol rail transport has caused billions in damages across North America. Crude-by-rail accidents threaten irreversible damage to waterways, many of which, like the Hudson River, serve as the source of drinking water for tens of thousands of people. This year alone,six oil-by-rail shipments have caught fire and exploded in North America. In July 2013, a derailment in Lac-Mégantic, Quebec, killed 47 people. The total liabilities for that rail disaster could easily reach $2.7 billion over the next decade.
Here are some of the ways the new safety standards fail to protect people and the environment:
• Hazardous cars carrying volatile crude oil can remain in service for up to 10 years.
• The rule rolls back public notification requirements, leaving communities and first responders in the dark about explosive crude oil tank cars rumbling through their towns.
• While new tank cars will require thicker shells to mitigate punctures and leaks, retrofit tank cars will be allowed to stay in use with a less protective design standard.
• Speed limits have been restricted only for “high threat urban areas,” but only two areas in New York have received that designation, Buffalo and New York City.
• The “high threat” category relates to cities seen as vulnerable to terrorist attacks by the Department of Homeland Security. It is unrelated to actual risks posed by crude-by-rail.
Fossil fuels subsidised by $10m a minute, says IMF
By Damian Carrington, 18 May 2015 09.30 EDT
‘Shocking’ revelation finds $5.3tn subsidy estimate for 2015 is greater than the total health spending of all the world’s governments
Fossil fuel companies are benefitting from global subsidies of $5.3tn (£3.4tn) a year, equivalent to $10m a minute every day, according to a startling new estimate by the International Monetary Fund.
The IMF calls the revelation “shocking” and says the figure is an “extremely robust” estimate of the true cost of fossil fuels. The $5.3tn subsidy estimated for 2015 is greater than the total health spending of all the world’s governments.
The vast sum is largely due to polluters not paying the costs imposed on governments by the burning of coal, oil and gas. These include the harm caused to local populations by air pollution as well as to people across the globe affected by the floods, droughts and storms being driven by climate change.
Nicholas Stern, an eminent climate economist at the London School of Economics, said: “This very important analysis shatters the myth that fossil fuels are cheap by showing just how huge their real costs are. There is no justification for these enormous subsidies for fossil fuels, which distort markets and damages economies, particularly in poorer countries.”
Lord Stern said that even the IMF’s vast subsidy figure was a significant underestimate: “A more complete estimate of the costs due to climate change would show the implicit subsidies for fossil fuels are much bigger even than this report suggests.”
The IMF, one of the world’s most respected financial institutions, said that ending subsidies for fossil fuels would cut global carbon emissions by 20%. That would be a giant step towards taming global warming, an issue on which the world has made little progress to date.
Ending the subsidies would also slash the number of premature deaths from outdoor air pollution by 50% – about 1.6 million lives a year.
Furthermore, the IMF said the resources freed by ending fossil fuel subsidies could be an economic “game-changer” for many countries, by driving economic growth and poverty reduction through greater investment in infrastructure, health and education and also by cutting taxes that restrict growth.
Another consequence would be that the need for subsidies for renewable energy – a relatively tiny $120bn a year – would also disappear, if fossil fuel prices reflected the full cost of their impacts.
“These [fossil fuel subsidy] estimates are shocking,” said Vitor Gaspar, the IMF’s head of fiscal affairs and former finance minister of Portugal. “Energy prices remain woefully below levels that reflect their true costs.”
David Coady, the IMF official in charge of the report, said: “When the [$5.3tn] number came out at first, we thought we had better double check this!” But the broad picture of huge global subsidies was “extremely robust”, he said. “It is the true cost associated with fossil fuel subsidies.”
The IMF estimate of $5.3tn in fossil fuel subsidies represents 6.5% of global GDP. Just over half the figure is the money governments are forced to spend treating the victims of air pollution and the income lost because of ill health and premature deaths. The figure is higher than a 2013 IMF estimate because new data from the World Health Organisation shows the harm caused by air pollution to be much higher than thought.
Coal is the dirtiest fuel in terms of both local air pollution and climate-warming carbon emissions and is therefore the greatest beneficiary of the subsidies, with just over half the total. Oil, heavily used in transport, gets about a third of the subsidy and gas the rest.
The biggest single source of air pollution is coal-fired power stations and China, with its large population and heavy reliance on coal power, provides $2.3tn of the annual subsidies. The next biggest fossil fuel subsidies are in the US ($700bn), Russia ($335bn), India ($277bn) and Japan ($157bn), with the European Union collectively allowing $330bn in subsidies to fossil fuels.
The costs resulting from the climate change driven by fossil fuel emissions account for subsidies of $1.27tn a year, about a quarter, of the IMF’s total. The IMF calculated this cost using an official US government estimate of $42 a tonne of CO2 (in 2015 dollars), a price “very likely to underestimate” the true cost, according to the UN’s Intergovernmental Panel on Climate Change.
The direct subsidising of fuel for consumers, by government discounts on diesel and other fuels, account for just 6% of the IMF’s total. Other local factors, such as reduced sales taxes on fossil fuels and the cost of traffic congestion and accidents, make up the rest. The IMF says traffic costs are included because increased fuel prices would be the most direct way to reduce them.
Christiana Figueres, the UN’s climate change chief charged with delivering a deal to tackle global warming at a crunch summit in December, said: “The IMF provides five trillion reasons for acting on fossil fuel subsidies. Protecting the poor and the vulnerable is crucial to the phasing down of these subsidies, but the multiple economic, social and environmental benefits are long and legion.”
Barack Obama and the G20 nations called for an end to fossil fuel subsidies in 2009, but little progress had been made until oil prices fell in 2014. In April, the president of the World Bank, Jim Yong Kim, told the Guardian that it was crazy that governments were still driving the use of coal, oil and gas by providing subsidies. “We need to get rid of fossil fuel subsidies now,” he said.
Reform of the subsidies would increase energy costs but Kim and the IMF both noted that existing fossil fuel subsidies overwhelmingly go to the rich, with the wealthiest 20% of people getting six times as much as the poorest 20% in low and middle-income countries. Gaspar said that with oil and coal prices currently low, there was a “golden opportunity” to phase out subsidies and use the increased tax revenues to reduce poverty through investment and to provide better targeted support.
Subsidy reforms are beginning in dozens of countries including Egypt, Indonesia, Mexico, Morocco and Thailand. In India, subsidies for diesel ended in October 2014. “People said it would not be possible to do that,” noted Coady. Coal use has also begun to fall in China for the first time this century.
On renewable energy, Coady said: “If we get the pricing of fossil fuels right, the argument for subsidies for renewable energy will disappear. Renewable energy would all of a sudden become a much more attractive option.
Shelagh Whitley, a subsidies expert at the Overseas Development Institute, said: “The IMF report is yet another reminder that governments around the world are propping up a century-old energy model. Compounding the issue, our research shows that many of the energy subsidies highlighted by the IMF go toward finding new reserves of oil, gas and coal, which we know must be left in the ground if we are to avoid catastrophic, irreversible climate change.”
Developing the international cooperation needed to tackle climate change has proved challenging but a key message from the IMF’s work, according to Gaspar, is that each nation will directly benefit from tackling its own fossil fuel subsidies. “The icing on the cake is that the benefits from subsidy reform – for example, from reduced pollution – would overwhelmingly accrue to local populations,” he said.
“By acting local, and in their own best interest, [nations] can contribute significantly to the solution of a global challenge,” said Gaspar. “The path forward is clear: act local, solve global.”
