The following is the sequel to an earlier story by Will Dubitsky on the growing green economy and Canada's failure to take advantage of it.
In the first part of this story for "The Common Sense Canadian", I discussed how Canadian and Quebec leaders are largely ignoring the potential of high job creation, high growth green sectors, while China, Europe and the US are showing real leadership. Here, I will dig deeper into the policies and organizations that are foolishly banking on the Canadian resource-based economy as the key to economic development. Sadly, while President Obama sits poised to veto the Keystone XL pipeline, signalling the accelerating transition into a new era, Canada is being left behind.
UP TO A TRILLION DOLLARS IN STRANDED FOSSIL FUEL INVESTMENTS
In keeping with Einstein's definition of insanity, nearly all the economic experts will tell you we must keep doing the same thing over and over again and expect different results. Yet the signs are that the fossil fuel era is approaching its demise.
First, long-term energy and energy-related investments already favour the green economy - largely because the costs of clean tech are coming down.
Second, in the Summer of 2014, long before the recent plunge in oil prices, it became apparent that unconventional resources such as the tar sands, shale and offshore oil cannot be supported by market prices. As a result, Big Oil has already started to withdraw from major unconventional investments around the globe, otherwise known as stranded assets. This trend is becoming more and more evident.
The growing order of magnitude of stranded fossil fuel investments are very telling. Of the2 Trillion invested in oil development in 2014, 930 Billion may never reach the return on investment stage - the makings of an investment bubble.
Considering the 20% return on equity for oil and gas in 2008 and the projection of a mere 5% return for 2015, it would appear that the most of the financial community has got it all wrong - especially when you factor in the increased volumes of stranded assets to come with oil at less than 70/barrel.
Unfortunately, financial institutions are not as diversified as they claim to be, totally bypassing the high growth, high job creation green sectors while maintaining the resource economy as integral to the majority of investment products/strategies.
DOUBLING DOWN ON UNCONVENTIONAL ENERGY
Meanwhile, Goldman Sachs has warned that the oil companies' capital expenditures for investments in unconventional resources have "gone through the roof" and that their Reserve Replacement Ratio, the measure which investors use to rate oil companies, is not encouraging. (New Internationalist, November 2014)
Similarly, a UBS study concluded that the rapid decline in the costs of clean energy, clean transportation and green economy integration technologies - such as energy storage technologies - together suggest that the writing is on the wall for fossil fuels and point to a full-scale shift to a green economy by 2020. ("Ibid")
LEAVING IT IN THE GROUND
This is about more than economics though. Governments around the globe are adopting strong climate policies which favour the green economy, acknowledging that 80% of fossil fuels must remain in the ground to avoid catastrophic climate change. That means that of the 12,000 gigatonnes of fossil fuel reserves, only 936 gigatonnes can be used.
26.4 BILLION/YR IN SUBSIDIES TO CANADIAN FOSSIL FUELS: IMF
Another issue is the fact that fossil fuels remain one of the most heavily subsidized sectors in the global economy. According to the International Monetary Fund, in US 2011 dollars, Canada spends 26.4B/year in direct and indirect subsidies (including health, climate change costs, etc.) for its fossil fuel sectors. This means that the unraveling of short-term thinking on fossil fuels will accelerate over time as the international community increasingly engages in addressing climate change. Put another way, the idea of shifting subsidies away from fossil fuels to the green economy will become increasingly attractive for policy makers.
Oddly enough, the representatives of the fossil sectors complain about subsidies for clean energy. The response of the European Wind Energy Association is that the wind sector could compete without any subsidies if it weren't for the subsidies fossil fuels receive.
RENEWABLES LEAD NEW ENERGY MIX
In the US, wind energy is now cost competitive with natural gas. Indeed, the change in the US energy paradigm is now well-entrenched, with
