Two-thirds of the global greenhouse gas emissions are caused by fuels such as burning oil, coal, and natural gas. However, the above-mentioned fuels are also the economic support for the largest companies across the world, and countries that are rich in resources.
As per a new working paper from Rice University’s Baker Institute for Public Policy, the currently propagated climate-change relief actions pose a danger for the fossil fuel industry. This paper titled “Climate Risk and the Fossil Fuel Industry: Two Feet High and Rising” was authored by Jim Krane, the Wallace S. Wilson Fellow for Energy Studies at the Baker Institute.
The paper lists and illustrates the variety of risks that the fossil fuel industry faces as a result of climate-mitigation policies.
“As climate-change effects grow more pronounced, there can be little doubt that an industry that produces 68 percent of human greenhouse gas emissions will find itself under increasing pressure,” Krane wrote. “The risks to the industry correlate with progress on climate goals. Unless a technological breakthrough can restrict carbon releases, the fortunes of the fossil fuel industry and the stability of Earth’s climate will be locked in a zero-sum game. Climate’s gain is the industry’s loss and vice versa.”
According to Krane, the four major categories of climate risk for fossil fuel industry are as follows:
Divestment risk refers to grassroots or shareholder activism that work at manipulating producer companies and at times countries, through reputational or financial means, or by investor avoidance of fossil fuel shares.
Policy risk refers to policies which support rival technology or government regulations, polices and pledges which decrease carbon emissions.
Competition risk refers to the rivalry for a share in the market among manufacturers seeking to monetize reserves prior to them being rendered unburnable; competition between fossil and noncarbon energy sources.
Demand risk refers to drop in demand for global fossil fuel because of climate and other factors.
Krane also summarized about fuel-specific risks which are not equally shared among the three fossil fuel types such as oil, coal and gas.
It is clear that carbon-based businesses face increasing impediments to the consumption of their products. Whether through taxes, legal restrictions, moral arguments, favoritism for competitors or hampered access to financial markets, the industry faces a future that is less accepting of its current practices. Some businesses will not survive. For others, the risks warrant changes in strategic direction.
He stressed that “the greatest risk of all” is failure. “Businesses may face existential threats from climate action, but these are dwarfed by a far greater risk — the possibility that climate actions may fail.”