In today's ESG and Climate report we discuss the issues facing the oil industry and present several possible scenarios focused around activist behavior and government behavior – none of the outcomes are pretty and the most likely one is quite concerning. The activists seem to be laser-focused on reducing the production of fossil fuel, but they are arguing for a timeline that is impractical and very inflationary – right now they are winning and they are changing the hearts and minds of investors, both public and in some cases private, but perhaps more important, they are influencing insurers. The fossil fuel industry needs to clean up its act, no doubt, and based on the chart below it is trying harder, but a transition period is necessary to prevent hyper-inflation not just in fossil fuel prices but also in renewables, as they would not be able to keep up with an aggressive cut back in fossil fuel production today – which is what activists are pushing for.
Source: IEA, June 2021
The same is true for recycling, although it has yet to hit the activist focus as much as fossil fuels. In both cases, changes are needed, but in both cases, a plan is missing – one which maps out the best path for the stakeholders that achieves the changes needed (within the timeline specified) but without causing undue economic harm in the process. The IEA energy transition plan is the best straw-man that we have seen for energy transition. We have yet to see one for plastic waste and recycling. (Maybe C-MACC should do it – we would be interested in client feedback as we would need significant cooperation to get it done)
