Fossil Fuel Free?

Why would a country like Saudi Arabia, sitting on one of the world’s largest reserves of oil, invest enormous sums of money in solar energy development?

While they have made it clear that they wish to diversify away from crude sales as the main source of government income, their oil minister Sheikh Ahmed Zaki Yamani also said, “Thirty years from now there will be a huge amount of oil – and no buyers. Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil.” 

So why invest in oil if the end of the oil age is to come in thirty years? Unless to speculate on short term price fluctuations, it becomes hard to justify oil as a long term component of an investment portfolio, even without pausing to consider the ethical considerations involved with global warming.

But many believe there is also a moral case for divesting from fossil fuels.

There is a growing awareness that the world is facing a ‘carbon bubble’. If we are to keep global warming from exceeding 2 degrees in the next 30 years, the consensus number at which higher temperatures will have catastrophic consequences for life on earth, then up to 80% of proven fossil fuel reserves may need to be left in the ground.

 

It is now possible to build a long term investment portfolio that is almost entirely free of fossil fuels. Huge progress has been made in solar, wind and battery technologies that now makes them attractive long term investment opportunities. While the evolution towards a clean energy economy may happen in fits and starts, the momentum is clear and inescapable.

Whether to divest or engage with the fossil fuel industry is a core activity in building out a financially and socially responsible investment portfolio for you or your organization. This is a subject that, as Investment Advisors, we are happy to discuss with clients in detail.