A warmer year for fossil fuel funding but finance climate still cooling

While there was hardly a ringing endorsement in the room of official policy; nor was there any pervasive doubt the decade or more of self-harming energy policy in Australia would halt the shift to renewables and alternative base load generation.

"There is no shortage of evidence… of myriad shifts towards lower carbon-intensity generation in Australia.”

Yet despite that tidal trend, it is not as if carbon intensive generation will rapidly disappear. There may be a steady drumbeat of warnings around stranded assets, particularly in the thermal coal sector, but many funders are still prepared to assume the risk.

Indeed, financing of so-called “extreme fossil fuels” (tar sands, Arctic and ultra-deepwater oil, liquefied natural gas (LNG) export, coal mining, and coal power) increased by 11 percent in 2017 with the world’s major banks committing $US115 billion.

I moderated the panel for the Renewable Energy discussion at the Australia-Israel Chamber of Commerce event (and bluenotes will soon publish a more detailed report on the views presented) and consensus was even where policy was absent or an impediment, market forces would drive the shift away from such fuels.

Those forces included the sustainability mandates of financiers – including this bank, ANZ, as well as institutional investors – consumer preferences, shifting cost curves and, ultimately, public opinion and regulation. Yet this latest survey of fossil fuel funding finds while there was a decline in 2016, when the Paris climate accord was signed by over 190 countries, it picked up again last year.

The report, Banking on Climate Change, produced by a panel of environmental pressure groups, attributed that to higher funding for tar sands extraction and pipeline projects, which more than doubled last year to $US47 billion.

Increase

The main US and Canadian banks increased their financing while European, Chinese, Australian and Japanese banks decreased it. The big four Australian banks were at the bottom of the survey of 36 global banks in their funding with Commonwealth Bank at 31 and ANZ, Westpac and National Australia Bank at 34, 35 and 36 respectively.

Royal Bank of Canada, Toronto Dominion Bank and JPMorgan Chase were highlighted as the three leading banks for financing extreme fossil fuel projects.

As I say, at an event like that hosted by the AICC, the audience tends to be self-selecting but there is no shortage of evidence in the market of myriad shifts towards lower carbon-intensity generation in Australia, reflected in these sorts of surveys.

For example, on bluenotes ANZ’s head of Sustainable Finance Solutions, Loans and Specialised Finance, Katharine Tapley – a panellist at the AICC event – outlines the size and shape of what is known as the 'sustainability bond' market.

The proceeds of these bonds are notionally earmarked to finance or refinance ‘green’ or ‘social’ assets or businesses.

“Globally the market was worth $US 160 billion in issuances in 2017, up from $US 87 billion the year before,” Tapley notes.

“Europe accounts for 60 per cent of the issuance and Asia just 25 per cent.  Proceeds at this stage go primarily to renewable energy, green buildings and transport. In Australia, the green bond market in 2017 totalled $A3 billion over 11 transactions, up from $900 million over four transactions in 2016.”

The latest of these surveys of extreme fossil fuel funding is obviously produced by a special interest group but its views are hardly extreme in the current environment.

“It is environmentally, reputationally, and often financially risky for banks to back these fossil fuel projects and companies,” the group argues.

“More and more, the public is tying the impacts of fossil fuels to the financial institutions backing the sector. The authoring organisations of this report - BankTrack, Honor the Earth, Indigenous Environmental Network, Oil Change International, Rainforest Action Network, and the Sierra Club - demand that banks end financing for extreme fossil fuels, and all expansion of the fossil fuel industry, while ensuring that their financing does not contribute to human rights abuses.”

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Alison Kirsch, Climate and Energy Research Coordinator at Rainforest Action Network, noted at a time when some European banks like BNP Paribas and ING are adopting policies that sharply restrict their lending, there were also banks and even governments moving in the opposite direction. The Trump administration for example is winding back environmental protections and even beginning to entertain scepticism again towards the science of climate change while diverting taxpayer funding to the support the coal sector.

“If we are to have any chance of halting catastrophic climate change, there must be an end of expansion and complete phase-out of these dangerous energy sources. Banks need to be accountable and implement policies guarding against extreme fossil fuel funding,” she said.

While tar sands and extreme oil are more northern and western hemisphere issues, in Australia the focus is most prominently on coal.

According to the survey, globally, coal power financing has stagnated over the past three years, though it remains one of the more highly funded sectors at $US94 billion from 2015 to 2017. The biggest funders are ICBC, China Construction Bank and the other Chinese mega banks, followed by MUFG and JPMorgan Chase.

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However, despite the tick-up in funding the climate action group argued 2017 “may go down in history as the year when it first became clear that the fossil fuel era was finally starting to sputter to an end”.

They argued the cost of new solar and wind power had started to fall below the price of new coal and gas plants in a growing number of regions, citing the chief executive of NextEra Energy, one of the largest electricity producers in the US, who now predicts “early in the next decade” power will be cheaper from unsubsidised new wind and solar plants in the US than from existing coal and nuclear plants.

“It’s still far from game over for the fossil fuel industry, but the game has drastically changed. In the “old days” of early 2017, the argument could still legitimately be made that yes, intermittent renewables are getting cheaper, but they are still intermittent – solar output crashes when the clouds roll in, and wind turbines are just sleek sculptures on a calm day.

“Long term energy storage and large scale battery storage were touted as the missing link. But the commissioning of a 100-megawatt grid-connected battery in South Australia in late November 2017, only 100 days after it started construction, was a stunning illustration that large-scale battery storage is now economically and technically feasible.”

To that the AICC panel added the development of “virtual power” stations, utilising such measures as behind-the-meter technology which allows both industry and consumers to feed their own excess power back into the power grid or sell their usage, along with a range of other measures to substitute coal-fired base load generation.

Moreover, the conventional coal powered fleet of power stations is now reaching an age where it is far from a “reliable” source when demand spikes.

Andrew Cornell is managing editor of bluenotes