The Executive Secretary of the United Nations Framework Convention on Climate Change talks fossil fuel company cap-ex, divestment, the Green Climate Fund and morality.
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Hugh Wheelan, Responsible Investor: Christiana, earlier this year in New York you called on investors to move out of high-carbon assets and into assets built on renewable energy, energy efficiency and more sustainable ways of business that green global supply chains. Why do you think this is not yet happening, and what can be done to lever this capital?
Christiana Figueres: I think it’s happening but not quickly enough. Why? I think there is a perception that fossil fuel investments continue to be more profitable and less risky than clean technology. That I think is rapidly being proved wrong. The launch today of the new Carbon Tracker Report shows that in the oil industry there are projects intended for large capital investment that are actually becoming far too expensive because of geographical/physical location constraints and a regulatory environment that is seriously impacting profit margins. Another issue is the underestimation of the power and the speed of policy development. I think there is a perception that policy is moving at a very slow pace. I wish it were moving faster, but the direction of movement is very clear: governments have been steadily progressing towards a low carbon agreement over the past three to four years, and will come to a draft agreement ‘THIS YEAR’ in December, and next year a full agreement! We are not talking about ten years from now. I think people need to be much more realistic about international policy. In addition to that, I think there is a total ignorance of national policy development where we already have 500 climate change laws in 60% of countries covering 80% of emissions… so this is actually happening!
To date, many investors have been hiding their heads in the sand, but they won’t be able to in the very near future.
Hugh Wheelan: Isn’t it the case that investors know when policy is impacting on pricing…but they don’t believe the regulation is tough enough at present, or that the politicians will get serious.
Christiana Figueres: Investors are not taking this seriously enough at present, for sure. But, it is telling that all of the oil and gas companies in their internal planning do have a shadow price for carbon. If that were not the case then one would say they have absolutely no knowledge of impending policy changes. But the point is that they do, and it’s anywhere between €60-80 per tonne: way above the current market price! So they are at least implicitly recognizing that either policy or physics is going to catch up with them, and it’ll most likely be both that will determine a major shift in investment!
Hugh Wheelan: How have the findings of this week’s US National Climate Assessment helped push forward the debate
Christiana Figueres: Actually in the past week we’ve had three major announcements coming out of the US. One was the government’s National Climate Assessment saying that ‘all’ areas of the US are being affected by climate change. Then, last week we had the US Supreme Court ruling that the government can regulate emissions from coal-fired power stations, and the Environmental Protection Agency (EPA) is on track to do so. And Stanford University has just announced that its $18.7bn endowment won’t make any more direct investments in coal mining companies and will sell off its existing holdings. That’s three major developments coming out of the US from three different sources, but which actually have a lot to do with each other.
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