Norway is using its wealth to lead an exodus from coal
Norway’s proposal to divest billions more from coal, and instead use the world’s largest sovereign wealth fund to invest in solar and wind is a sign of things to come – and may just be what catapults the global clean energy market into sky rocketing growth.
The proposal is set to pass into law in June and follows supportive policy agreed by the ruling Conservative Party last year. It will see the Norwegian Oil Fund invest up to 2 percent of its global trillion-dollar portfolio into solar, wind and other renewable projects – a sum of over $20 billion.
From a conservative perspective, this re-calibration of the Oil Fund is both a necessary response to climate change, and a very shrewd financial decision. Those who fear these developments should take this as an opportunity to sit up and see which way the trend, and money, is flowing.
There are many reasons why this decision is financially sound.
There is already a thriving multi-trillion dollar renewables infrastructure market, which is expanding steadily. Renewables are becoming cost-effective. Dramatically falling costs, rapid technological advances and sustained levels of investment mean wind and solar promise to deliver the Norwegian people the same steady, high returns enjoyed by many other funds.
Conversely, coal is sinking – a toxic investment being propped up not because it has a future but simply so those heavily invested can eke out the last dollar before jumping ship.
And they are jumping.
Since 2013, according to the global energy think-tank, IEEFA, over 100 financial institutions have placed restrictions on coal lending.
The U.S. is leading the way in cancelling coal power plants, and even Japan has backflipped on its aggressive pro new-coal approach, choosing instead to halt both new construction and upgrades to existing plants thanks to policy introductions from Environment Minister Yoshiaki Harada. South Korea – once touted by coal executives as a major future market – has stopped issuing permits for new plants.
Bloomberg and other media report that the Norwegian government’s new proposed criterion will lead to the divestment of some $4.2 billion from well-known names including RWE, Glencore, BHP Billiton, Anglo America, South32, Sumitomo and Uniper. Norway’s 2015 coal divestment policy is now being tightened to push out the remaining large miners and power company giants which have been too slow to move away from coal.
And it’s not just coal.
Mark Lewis of BNP Paribas Asset Management (which manages $450 billion) has warned that renewables will inexorably corrode the profits of the oil-and-gas industry.
PR and lobbying won’t avoid the issue and the promises of carbon ‘capture and storage’ have proven to be challenging. Only a real shift out of fossil fuels and into solar and wind will save businesses from financial ruin.
For now, the Norwegian Oil Fund has decided to maintain some of its overseas investments in oil and gas giants such as Shell and Exxon. Particularly given Norway’s double exposure to these declining markets through our state-owned oil giant, Equinor, these holdings are becoming a milestone around our collective necks, both environmentally and financially.
The Norges Bank has already tolled the bell, warning that the Oil Fund would be almost $40 billion better off if it didn’t own oil and gas shares overseas. It seems only a matter of time before this too is divested.
The irrefutable truth is that climate change is shaping our global economy, and renewables are our financial future. Norway is starting to get ahead of the curve and the faster it moves, the greater the rewards it will reap. Rather than cling on to stranded fossil fuel assets, our country has to use its wealth to propel us into and shape our future; a future that will bring sustainable prosperity, both financially and socially.
It is a step that will change the global energy market forever. Investors and governments that value high capital returns, and their future, would be wise to follow suit.
(By Lene Westgaard-Halle)