The future cannot look like the past
Manager, Extractives Research & Engagement
All eyes are on Paris as leaders gather to address the globe’s most complex and difficult problems: how to shift from carbon-intensive fossil fuels to a low-carbon energy system.
That there is a need to do so is now broadly accepted. Atmospheric concentrations of greenhouse gases have increased by about 40% since the dawn of the industrial revolution1. This increase comes from the combustion of carbon-based fuels principally from coal, oil and natural gas. Deforestation has also played a large role releasing vast stores of carbon more naturally locked up in trees and forest soils. As atmospheric concentrations have increased, so too has the increase in global temperatures. This increase has warmed and acidified the ocean, melted glaciers, contributed to storm violence, prolonged and deepened droughts, threatened food security and human health and forced the abandonment of populated areas due to flooding. The adverse impacts of climate change do not lie in some distant future: they are here. Without concerted and massive effort now, it will get worse.
This is the energy transition challenge. As demand rises for energy, so too does the production of fossil fuels – which currently supply 80% of the world’s energy consumption.2 The reason why we are so reliant on fossil fuels is simple – they have been an incredibly rich and relatively cheap source of energy. Our global economy, and standard of living, has benefited immensely from the exploitation of fossil fuels. Breaking the link between economic and social well-being and the use of high-carbon energy will be challenging, but to ensure long-term sustainability for the planet we need to advance quickly.
Have we made progress? Well, yes, we have. Provincial and state governments have implemented carbon pricing in one form or another and are working together to form global markets for trading and reducing carbon emissions. We’ll see more on this in Paris. First Nations, environmental organizations, resource companies and financial institutions have gathered under the auspices of the Boreal Leadership Council to work with others and support the protection of Canada’s boreal forest. Currently, more than 350 million acres of the boreal have been protected3 – an area roughly three and a half times the size of California – in what must be one of the most successful (and quietest) conservation efforts in history. Advances in energy technologies, likewise, are encouraging. The costs of solar, wind, tidal, and geothermal power are all decreasing and government efforts to support these technologies have played a key role. We believe that renewable energy is poised for substantial growth, and investors will be a critical player in scaling up the sector.
The energy transition can be an important opportunity for society. Investors and consumers of energy must play an active role and we need dialogue with governments and the energy industry to ensure that the transition to a low carbon economy is a smooth one. The status quo will ultimately benefit no one and investors in particular should be prioritizing efforts to guide the transition.
More importantly, this current spotlight on energy and the growing global momentum towards a low carbon economy provides a valuable pivot to other critical environmental issues of our time such as water, waste, and food. Like energy, they face a similar challenge of finite resources against a growing tide of increasing consumption and demand. Maximizing their utility in an optimal way becomes paramount moving forward. The good news is that inventive companies are now delivering innovative and efficient solutions in these areas and opening up a new investment opportunity set for investors in “environmental markets”. Investors need to recognize that a paradigm shift is happening in the economy and we can no longer hold to this notion of a “throw away culture” with our precious resources. We must take care of them and use innovation to extend their shelf life, which will in turn open new channels of investment and ultimately, ensure that the future does not look like the past.
2 2014 IEA World Energy Outlook (no link – hardcopy book)
3 Sustaining Canada’s Boreal Forest: http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2015/04/sustaining-canadas-boreal-forest