Video

Introduction

America’s president is widely viewed as having the most powerful job in the world. Yet when it comes to energy and emissions, there are powerful trends and drivers that even President Trump cannot easily divert, impede, or modify and despite a willingness to walk away from the Paris Accord and pronouncements of a Coal revolution, there a larger motions in play that even the US cannot stop.

Take carbon emissions, for example. Even if the EPA is gutted, as the Trump administration currently envisages, they will face an increasingly strong headwind . According to Arabella Advisors, over 700 financial institutions and pension funds managing over $5 trillion of assets have already divested themselves of fossil-heavy investments. While that’s still a minuscule number relative to the total scale of global assets, no coal mining company or coal-fired power plant can escape an eventual reckoning.

BlackRock, the world’s largest asset manager with $5.1 trillion under its control, recently announced that it would begin to exert pressure on companies on how they consider and disclose the potential impact of climate change in their business operations and planning.

BlackRock regards climate change as one of its top “engagement priorities” in discussions with corporate leaders and investors, and has dedicated a 30-person team to assessing the risk to corporate operations and future profits from climate change.

Why would BlackRock, which after all is concerned with generating the best possible returns, wish to rock the boat? A Bloomberg report released earlier this year shows that there are no alternatives: EPA can cancel or ignore Obama’s Clean Power Plan and it won’t make much of a dent. Companies will increasingly come under pressure from pension and fund managers, even private investors, to disclose their potential exposure to climate change, and that will inevitably focus on their carbon footprint.

She sells sea shells…

In mid-March 2017, Royal Dutch Shell divested $7.25 billion of its assets in Canadian tar sands. Chevron is apparently considering a similar move. Many factors, of course, contributed to the decision. Lower oil prices, no doubt, make extracting oil from tar sands a challenging proposition. One can only surmise, however, that the rising cost of carbon emissions also played a role. Who in this day and age wants to hold onto assets that could become stranded if, say, the pendulum swings in the opposite direction under the next U.S. president?

Shell selling assets
Shell selling assets

Or consider Trump Administration’s recent decision to abandon mileage efficiency standards for future cars and light trucks in the U.S. The future of transportation, many experts agree, is electric. Moreover, cars are likely to be increasingly shared – or Uberized – and probably driverless, once the current kinks in autonomous car technology are sorted out. If not in the 2020s, then in the 2030s.

Car manufacturing is already moving away from the pedal and metal model to sophisticated navigation software. Companies that make the bodies, the electric motor drives, and the tires will not be the profitable ones. Those that manage navigation, automation, communication, entertainment, and data will be.

Electric vehicles charge ahead

While EVs so far account for just 1 percent of the U.S. auto market, if recent growth trends persist or accelerate, and spread to other countries, it will challenge global automakers to reinvent themselves in a hurry.

Not only will car companies be affected by the rapid rise of EVs, so will oil companies. In October 2016, a resolution calling for a phase-out of gasoline-powered vehicles by 2030 was introduced in the Bundesrat, Germany’s upper legislative chamber. If Germany, home of legendary car makers like Mercedes, BMW, Audi, and VW, can even contemplate such a resolution, lesser-known brands better begin to worry.

The German resolution did not pass or get much traction – unsurprisingly, given the critical role and political clout of the German auto industry – but similar ideas have been bubbling up in other European countries, including Norway, which already has ambitious plans to encourage EVs, powered from the country’s nearly 100 percent hydro power, to replace gasoline and diesel engines. Denmark has vowed to gradually wean its entire economy, not just transportation, away from fossil fuels.

Clearly, powerful global trends are challenging entrenched companies and industries and forcing them to adapt; even if they temporarily impede the progress or divert attention from the fundamentals, attempts to change the outcome are not likely to succeed.

References
  1. Long-Term Energy and Emissions Trends Won’t Be So Easily Diverted By White House Tweet Storms – The Electricity Journal – Volume 30, Issue 5, June 2017, Pages 61-62

 

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