In a world that is increasingly demanding to be carbon-free, what kind of a future do fossil fuel companies such as Coal India, ONGC and NTPC, have? Clearly, a difficult one.

Fossil fuels are under threat, mainly because of two entwined global mega trends.

One, coal and oil are being made expensive to produce and use, and two, renewable energy is being enabled to become cheaper. The voices calling for rapid de-carbonisation of the world are not only becoming shriller, but are also being taken seriously. De-carbonisation is synonymous with stopping the use of fossil fuels.

Costly fossils The biggest cost-push to fossil fuels will come from ‘carbon pricing.’ The call to penalise those who spew carbon dioxide into the atmosphere is gaining support. A few countries levy a ‘carbon tax’, the emitter pays per tonne of CO2 released — Sweden, Finland and Chile are examples. The European Union has a ‘cap-and-trade’ system, where emission rights are auctioned and those who can’t help emitting more have to purchase the rights from the market.

Today, the price of carbon is very low —$7 per tonne in 2014, on average — but the call is to raise it, to deter emissions. On June 23, the Canfin-Grandjean Commission of the French government called for a ‘carbon corridor’, raising the price of carbon to $15-20 per tonne of CO2 by 2020, and raising it further to $60-80 by 2030-35. While this is only a recommendation to the French government, it illustrates the Western thinking on carbon pricing.

Secondly, financial institutions the world over are under pressure not to fund fossil fuel projects and if they do, to make their loans dear. In May, Norway pulled its sovereign fund out of all coal and oil stocks, joining a growing list of get-outers, which includes World Council of Churches, Rockefeller Brothers Fund, Total, AXA and the Stanford and Syracuse universities.

In the coming years, debt funds too would be under similar pressure. The Canfin-Grandjean Commission has recommended that France should lobby for lenders to price ‘climate risk’ in loans. It wants lenders to “measure greenhouse gas emissions induced by their lending activities.”

Financiers will look at ‘natural capital’ used, putting a numerical value on the pollution, degradation and depletion of natural resources — something currently not done. The Natural Capital Coalition, (a body whose members include Coca Cola, Adidas, the University of Cambridge and the big consultancy firms, Deloitte, EY and PwC) says that in 2009, the cost of natural capital was $7.3 trillion.

When these costs are accounted for, fossil fuel-related activities will become very dear. Alongside, there is pressure on governments to stop subsidising fossil fuels. In May, the IMF came out with a shocking estimate that global energy subsidies amount to $5.3 trillion (India $277 billion).

So, if you add up higher cost of finance, penalty for carbon and removal of subsidies, the picture is clear: fossil fuels will be very expensive.

Unlike fossil fuel, renewable energy is receiving a major push. All the moneys coming from fossil fuel divestments will go towards funding green projects.

Cheaper renewables In May, some economists and scientists in the UK started the ‘Global Apollo Programme’, which seeks to mobilise $150 billion of public funds for research into renewables, so that renewable energy is cheaper than fossil energy in 10 years.

Private sector-funded research into renewable energy is anyway happening and we have seen, for example, the prices of solar energy fall drastically (roughly, halved to ₹6 a kWhr in four years, in India.)

Clearly, the fossil fuel industry’s fortunes are sagging and the industry does not seem to be prepared. Global oil companies, who took a few steps towards wind and solar in 2000-2010, are in rollback mode. The Western media is full of reports about companies like BP, Chevron and Shell stalling investments in renewable energy.

In India, the response of companies like ONGC, Coal India and NTPC to the global mood against fossil fuels is limited to setting up a few solar plants, but that is hardly likely to protect their core business, which is under attack.

The problem with renewables is fickle Nature — wind and solar do not produce power evenly though the day; this is a headache for grid managers. The solution to that problem — storage —was costly. But now, improvements in storage technology are making renewables look viable. Renewable energy looks set to eat into fossil fuels’ business and take it over in the longer run.

Those who laugh at the notion should remind themselves of Western Union Telegraph Company in the late nineteenth century — which similarly laughed at the notion of a “child’s toy” demolishing its business — a toy which we today know as the ‘telephone.’

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