Climate change, economy, environment, ESG, retirement, risk management, Socially Responsible Investing, SRI

Climate Concerns Rise, but Energy Sector is Fighting Back…

In the past year Climate Change has become a focus of central concern for people worldwide. Warnings have been issued by IPCC that we need to collectively and drastically reduce our use of fossil fuels within 10 years in order to avoid the worst impacts of a rise in temperatures above 1.5 degrees.

Institutions are joining in the demand for change.

According to the Guardian, in January 2020, analysts at JP Morgan Chase wrote “a report on the economic risks of human-caused global heating (that) said climate policy had to change or else the world faced irreversible consequences. The study implicitly condemns the US bank’s own investment strategy and highlights growing concerns among major Wall Street institutions about the financial and reputational risks of continued funding of carbon-intensive industries, such as oil and gas.” (1)

“The world’s largest financier of fossil fuels has warned clients that the climate crisis threatens the survival of humanity and that the planet is on an unsustainable trajectory, according to the document.”

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In addition, the recent global economic weakness has caused the price of oil fall to $50/bbl. Low oil and natural gas prices hurt the profitability of the oil and gas industry. Also, the past year has led increasing demands for a ban on fracking due to environmental, health and climate change concerns.

In a recent interview, Mike Sommers of the American Petroleum Institute discussed the impact that a ban on fracking would have on the energy industry in the US. Vonnie Quinn and Amanda Lang of Bloomberg news asked some hard-hitting questions that deserve attention. (2)

“We take this very seriously… the first thing you need to know is that 95% of the wells in the United States are currently fracked, so this isn’t some obscure technology. In addition to that our studies show that 7.5 million jobs are at risk in this country if there were a ban on fracking. I addition household energy costs would rise about 50%, and farm income in particular is what we are really worried about… farm income could go down very significantly if these proposals (to ban fracking) were put into effect.”

Vonnie Quinn of Bloomberg responds, “You say that… But this is the perennial fight over time, but its clear the country is moving in a different direction. How can you hope to stave it off for much longer?”

Sommers responds, “I do think it’s a perennial fight between those who don’t think the US should use its resources and those who think we should maximize the resources. The effect on the US economy has been tremendous, and from a national security perspective its been great too.”

Quinn asks, “Well, put some numbers on those claims. What has it actually meant in terms of GDP growth? And when you say national security what exactly do you mean?”

Sommers reponds, saying “Think about where we were 10 short years ago. We were held hostage routinely by rouge regimes in the middle east… Think about the impact of the attack on Saudi oil facilities, we would have seen a doubling of oil prices, what do you think that would have done to the American economy…”

Quinn cuts him off mid-sentence, “But that’s not comparable.”

Sommers retorts, “It absolutely is comparable. The United States has doubled the supply of oil produced in 10 short years. The supply shock was much less significant during that Iran attack.”

Amanda Lang of Bloomberg chimes in saying “We certainly would not expect someone from the American Petroleum Institute to come on and say we should move away from fossil fuel energy, but that is the debate. There’s also a lot of environmental concerns, a lot of health concerns. How do you address those very real issues raised by fracking?”

Sommers responds, “What I would say is the environmental benefits of fracking far outweigh the costs. It’s because of fracking that we have been able to lower the price of natural gas. And because of that we have been able to replace coal which is a much bigger emitter than natural gas, and the environmental benefits have been tremendous. We estimate that the air is cleaner today than it has been in a generation. That is something to be proud of and would not have happened without American production.”

Quinn states, “No question gas is cleaner than coal, wind is cleaner than gas… it’s a continuum.”

Sommers concludes, “We are focused on reducing our environmental footprint as much as possible and promoting worker safety. Our membership is focused on keeping production safe and environmentally responsible.”

We live in challenging times on multiple fronts. The risks posed by fossil fuels needs to be addressed on a societal, political and economic level if we are address climate, environmental and health concerns. To discuss socially responsible investing and managing risk, feel free to contact me at james.cox@ffgadvisors.com .

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James Cox
Cell: 267 323 6936
Email: james.cox@FFGadvisors.com
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2020-95425 exp 2/22

  1. https://www.theguardian.com/environment/2020/feb/21/jp-morgan-economists-warn-climate-crisis-threat-human-race
  2. https://www.bloomberg.com/news/videos/2020-02-21/frack-ban-would-risk-jobs-and-hurt-farms-api-ceo-sommers-says-video?sref=qbSjPdvo