Why Are Banks Investing In Extreme Fossil Fuels?

“Extreme fossil fuels” are those that come from the most difficult and dangerous sources, and generate the worst pollution. Big banks upped their investments in such projects last year.

You’d think they’d do the opposite, considering Europe’s nascent carbon-neutral economies, and Millennials’ avowed interest in saving the planet. Despite political, moral, or scientific arguments, the risk profile of fossil fuels — the cap ex and operational costs of extraction, generation, and distribution, over time — should be getting less attractive to lenders and investors, not more so.

What’s going on? Here are three theories that aren’t mutually exclusive, and none of them are good:

Crumbling Global Consensus on Climate Change

According to the Financial Times, financing of extreme fossil fuel projects declined in 2016, which was the year the Paris climate accord was signed. Only a year later, American and Canadian banks were leading the upsurge, and perhaps it’s no coincidence that North America’s extreme projects include tar sands, deep offshore wells, drilling in the Arctic wilderness, and pipelines.

Perhaps financiers are relying on continuing favorable political support (and/or betting that pressure for further global limits won’t be forthcoming).

The Ugly Backstory to Electric Cars

While electric vehicles (EVs) emit no pollution, the electricity that powers them has to come from somewhere. There are many studies, like this onereferenced in Nature, that “clean” EVs will prompt more greenhouse emissions from traditional (or extreme) generation.

Also, while electricity produced from renewables is a true miracle in the making, there are many needs and uses for energy that aren’t within reach of electrical grids (such as most of Africa), are located in regions that struggle to match generation with use (Germany produces lots of electricity from solar in the summer, only has no use for it), and/or require load or other factors that electricity can’t meet (motors in factors that have to power up or down quickly, for instance).

There could well be an increased number of potential future customers for extreme fossil fuels.

Renewables Have Been Grossly Oversold

As anybody who has had their smartphone die during the day knows, battery technology stinks, and storing gigawatts of electricity is a bigger problem. One study in Texas found that the simultaneous charging of just 60,000 cars would use the entire peak generating capacity of the state. BTW, Texas registers 24 million vehicles every year.

Combine that with the uncertainties of wind and sunshine, and all of the technical hurdles to dealing with it, and you get a society planning to depend on undependable sources. It could be a helluva lot harder to feed our need for electricity with renewables than we’ve been told.

Ultimately, I doubt there’s some evil cabal intent on raping the planet, since even pillaging in the short term should be tempered by awareness of long-term costs. There’s money in fossil fuels, and going to extremes to make it means the big banks financing it either know something we don’t know, or the pricing mechanism of markets is so out of whack that they don’t expect to get charged for what their decisions should cost.