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EXPERT COMMENT

Some investors in hydrocarbons may be assuming that governments will bail them out if climate-related transition risks crystallize.

According to the International Energy Agency, some $2 trillion will be invested in clean energy technologies in 2024, up from $1.9 trillion in 2023. While this trend is very welcome given the evidence of worsening climate change, more than $1 trillion will still be invested in coal, gas and oil in 2024.

This is a major problem for two reasons. Firstly, any funds going to hydrocarbon investment are not available for green investment. Secondly, it is increasingly likely that hydrocarbon assets will become ‘stranded’ as a result of rapid technical and policy change, with serious consequences for financial stability.

Moreover, with clean energy investment focused on advanced countries and China, these risks will be increasingly concentrated in emerging and low-income economies – although the absolute level of climate transition risk in assets located in advanced countries and China will be substantial as well. 

Why has the private sector’s enthusiasm for hydrocarbon investment continued at such a high level – beyond what is needed to exploit fully existing energy assets – despite the evident risks? This is reflected in the vigour with which some major oil companies have resisted shareholder initiatives requiring them to give more weight to climate change in their decision-making. 

Click here to continue reading the full version of this Expert Comment on the Chatham House website.