The U.S. fossil fuel/renewable energy revolutionary industry merger fantasy thing is hereby cancelled

Summary: The U.S. petroleum industry is about to be given free rein to continue to lobby against climate change, merely delaying its day of reckoning as a repeat of the tobacco industry. Meanwhile, the European oil & gas industry — as well as other sectors — have demonstrated a willingness to begin to invest heavily in clean tech and are leading the way for fresh capital flows into renewable energy.

Carlos St JamesAbout the AuthorCarlos St. James is Managing Director of Santiago & Sinclair, LLC, a research and financial advisory firm to energy investors in emerging markets. He is a co-founder of the Argentine Renewable Energies Chamber; has been a board member of the Latin American & Caribbean Council on Renewable Energy since 2010; and publishes the Latin American Energy Review in his free time.

He will speak at next year’s LAC-CORE Finance Summit to be held in June 2017 in Miami, Florida.

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It is generally understood that the fossil fuel industry is led by individuals that are conservative in nature. A recent study has now been able to quantify it showing where a number of professions fall on the U.S. political spectrum using a database developed by Crowdpac, a political data analysis firm.

As it turns out, the only two industries more conservative than oil & gas are mining and agriculture. The following chart (click on images to enlarge) from the report shows the red-colored conservative leanings of fossil fuel industry leaders.

Oil Gas and Coal Executives Political Leanings

Online Computer Services Executives Political Leanings

 

 

 

 

 

Mapping the Ideological Marketplace. Source: Bonica, Adam. 2013. Database on Ideology, Money in Politics, and Elections. Stanford, CA: Stanford University Libraries. ‹http://data.stanford.edu/dime›.

But comparing it to another industry, Online Computer Services (think Google, facebook, Amazon, etc.), you can see a very strong yet opposite liberal bias in their leaders (mostly blue in the above graph). According to the study, the only professions more liberal than this one are the entertainment industry and academia.

The fossil fuel and clean energy sectors have a long and largely antagonistic history centered on climate change. It’s well documented that climate change denial has been heavily funded by the petroleum industry; two of its leading proponents are U.S. firms ExxonMobil and Koch Industries.

But why spend millions on the denial? The assumption is that Big Oil fears losing revenues in two sectors — power and transportation — because of a new market actor: renewable energy. But there is another explanation.

world-net-electricity-generation-by-fuel-in-trillion-kwh
World Net Electricity Generation by Fuel, 2012-14. Source: EIA

Petroleum is a minimalist player in generation of electricity, with less than a 1% global share. As per this graph, it is the coal sector that has more to worry about in losing market share to renewables: 94 coal-fired plants were shut down in the U.S. last year and another 40 in 2016. Meanwhile, natural gas is having a resurgence and likely to also eat away at coal’s market share.

Another oil industry concern is that electric vehicles (EVs) will eat up their profits. This one might be closer to the truth: as per the next graph, more than two-thirds of petroleum is used in the transportation sector. But in that case the oil industry’s quarrel should be with companies like Tesla Motors, which makes electric cars, and not solar or wind energy. Unfortunately for the fossil fuel industry, the above-mentioned political study also shows that the automotive industry is noticeably more liberal than conservative — and beginning to embrace EVs.

petroleum-percent-consumption-by-sector

The fossil fuel industry is indeed concerned with losing market share to clean energy in transportation and they certainly lobby against EVs through what are set up as grassroots opposition groups. But that is not at the heart of what is driving their funding of climate change denial or their distaste for clean energy.

“It is difficult to get a man to understand something when his salary depends upon his not understanding it” – Upton Sinclair, 1935

 

Big Oil in the U.S. will ultimately go the way of Big Tobacco

The petroleum industry fears ending up like the tobacco industry, which was found liable for health damages from cigarettes. In individual and class action suits that began in the 1950s and continue to this day, tobacco companies were found to have deceived the public about the realities of scientific research on smoking and were ultimately held accountable because they had colluded to deceive the public as well as policymakers about the risks their products caused. The same happened to the construction sector after the cancer-causing risks of asbestos was established, and their manufacturers were held liable for damages.

The bill for climate change will be enormous and the petroleum industry is delaying its day in court by continuing to deny it and mislead the public as well as government. Embracing renewables might suggest they actually acknowledge climate change as a reality.

An increasingly conservative U.S. Supreme Court will allow the petroleum industry to continue to deny climate change and avoid paying the penalties they will eventually be forced to pay. This will primarily affect U.S. oil companies, so we can count on them continuing on a path to their own unhappy ending. But this same path will also ultimately weaken the American energy industry as a whole, since non-U.S. oil companies have already started to invest in clean energy as they begin to forge the energy powerhouses of the 21st century.

European oil companies have a clearer view of the future. France’s Total has invested billions in clean tech through a controlling stake in SunPower, a solar panel manufacturer, as well as investing in energy storage. British Petroleum invested in solar some years ago, then divested, and is now returning to clean energy. Norway’s Statoil is investing heavily in offshore wind. Middle Eastern oil companies, not especially known for their liberal views, have also realized they need to adapt. And in recent months seven major oil companies joined forces to create an investment fund to develop renewable energy technologies. These are: BP, Eni, Repsol, Saudi Aramco, Shell, Statoil and Total. Note that there isn’t a single U.S. company in the bunch.

In parallel with this, the liberal Online Computer Services industry have begun to invest billions of dollars in clean energy and are paving the way for more companies to do the same: companies such as Apple, Microsoft, Amazon and Google. This helps explain, for example, why a Google executive gave one of the opening keynote speeches at Greenpower’s annual renewable energy conference in Chile and not an oil & gas professional.

One of my role models is Upton Sinclair, an American author from the first half of the last century who wrote at length about social justice. One of his better known quotes is applicable here: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” Leadership in energy will no longer come from U.S. energy companies this century — to the detriment of American power and prestige. It will go to those willing to look a little farther into the future and are less encumbered by a fear of change.

© Latin American Energy Review 2016

 

About the Author: Carlos St. James is the Managing Director of Santiago & Sinclair, LLC, a US-based financial advisory firm focused on renewables in emerging markets. Carlos co-founded the Argentine Renewable Energies Chamber (CADER, by its initials in Spanish) and was its first President until 2011; is a board member and was elected the first President of the Latin American & Caribbean Council on Renewable Energy (LAC-CORE); is the founder and chairman of the Middle East-Americas Energy Council (MEAMEC); and founder and publisher of The Latin American Energy Review. His private sector background is focused primarily on finance and bringing together stakeholders so that deals get done. He advises governments on renewable energy policy, counsels private equity firms seeking to enter the region; and brings together stakeholders, including investors, for new energy projects.

He obtained his undergraduate degree in international economics from DePaul University and his masters in international relations from the Fletcher School at Tufts University.

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