How Climate Activists Caused the Global Energy Crisis
Shareholder divestment campaigns caused oil and gas shortages, a return to coal, and higher emissions
Over the last decade, climate activists have successfully pressured governments, banks, and corporations to divest from oil and natural gas companies. At first, such efforts appeared to be strictly symbolic. But in recent years climate activists succeeded in driving public and private investment away from oil and gas exploration and toward renewables. The result is the worst energy crisis in 50 years.
Under-investment in oil and gas exploration is not the only cause of today’s energy crisis. The economic comeback from the covid pandemic has pushed up demand. The lack of wind in Europe meant higher demand for both natural gas and coal. And a drought in Brazil meant it had to import natural gas.
But the main cause of energy shortages is the half-decade-long under-investment in oil and gas driven by climate concerns.
“ESG [environmental, social, and governance] considerations account for much of the decline in capital expenditure by international oil companies in recent years,” notes The Financial Times today, “and the investor exodus out of oil and gas markets.” Bloomberg agrees, noting that “the market is now fixated on climate change and the dwindling appetite to invest in fossil fuels.”
China, India, the U.S., East Asia, and Europe are all mining and burning more coal to make up for the lack of natural gas. China’s government recently waived environmental safeguards on coal mining. China imposed rolling blackouts due to energy shortages while India narrowly avoided them.
Normally, the anticipation of higher oil and gas demand causes firms to increase investment in exploration. That hasn’t happened. The main reason, according to Goldman Sachs, is climate activist pressure on governments, firms, and banks to divest from oil and gas exploration.
Oil and gas exploration investments declined by half between 2011 and 2021, notes The Financial Times. New oilfield discoveries fell to historic lows between 2016 and 2020, not due to a lack of oil, but a lack of investment in exploration. Today firms are spending 25 percent less than they need to hold oil production steady.
The result of successful climate activism is, paradoxically, rising coal use and carbon emissions. That’s because electricity produced from natural gas produces about half of the emissions of coal.
Some of us warned that climate activist efforts against natural gas would backfire. Eight years ago I defended fracking for making natural gas cheaper than coal. Reducing natural gas exploration would make gas more expensive, I argued, and delay the transition away from coal.
Some worry that cheap oil increases its use, but petroleum use is highly inelastic since our cars and trucks rely on it. Little oil is burned for electricity production, and natural gas is required to balance at the intermittency of solar and wind.
The proof is in the data. Fossil fuels’ share of global energy production remain unchanged at 84 percent since 1980. To the extent emissions in Europe and the US declined, it was largely due to the transition from coal to natural gas.