Inflection Point
Jan. 12th, 2018 06:45 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
jsburbidgeThe recent news that New York is divesting from oil based investments may mark, at least symbolically, and possibly substantially, an inflection point for the fossil fuel industry.
For some years the price per erg of renewables has been dropping, while the price per erg of fossil fuels has not been keeping pace (fracking brought prices down from all-time highs, but the risks and externalities associated with fracking make the long-term prospects dimmer than they would otherwise be). I am not even including the problems raised by carbon taxes or other responses to environmental concerns.
The thing to note is that the costs of fossil fuels do not have to jump massively for the industry to fall over a cliff. Especially in the context of a political and social world where concern with anthropogenic climate change places a thumb on the scales in favour of carbon-neutral, or at least less carbon-generating, renewables (outside the Trumpian bubble), it doesn't take a big drop by comparison on ROI for renewables for fossil fuel investments to fall off a cliff. Once the two curves cross, the medium-term and long-term prospects - the things that pension funds look at - for oil and gas decline markedly. In short, you don't have to hit peak oil for markets to respond; all you need is a comparative disadvantage.
This is not a small thing. Once this starts to be factored into the future of energy securities the notional value of the fossil fuel companies (already overvalued by any rational standard) will collapse. This particular event may not be the signal which will trigger such a collapse, but it will be something like this,
For some years the price per erg of renewables has been dropping, while the price per erg of fossil fuels has not been keeping pace (fracking brought prices down from all-time highs, but the risks and externalities associated with fracking make the long-term prospects dimmer than they would otherwise be). I am not even including the problems raised by carbon taxes or other responses to environmental concerns.
The thing to note is that the costs of fossil fuels do not have to jump massively for the industry to fall over a cliff. Especially in the context of a political and social world where concern with anthropogenic climate change places a thumb on the scales in favour of carbon-neutral, or at least less carbon-generating, renewables (outside the Trumpian bubble), it doesn't take a big drop by comparison on ROI for renewables for fossil fuel investments to fall off a cliff. Once the two curves cross, the medium-term and long-term prospects - the things that pension funds look at - for oil and gas decline markedly. In short, you don't have to hit peak oil for markets to respond; all you need is a comparative disadvantage.
This is not a small thing. Once this starts to be factored into the future of energy securities the notional value of the fossil fuel companies (already overvalued by any rational standard) will collapse. This particular event may not be the signal which will trigger such a collapse, but it will be something like this,
