By Emily Chasan

Jul 8, 2020

(Bloomberg) It was a tough week for the North American fossil fuel industry. Over just a few days, the Atlantic Coast natural gas pipeline was canceled by developers, the Dakota Access oil pipeline was shut down by a federal judge and the Trump administration lost its Supreme Court bid to resuscitate the Keystone XL oil pipeline (though the justices did make it easier to build other pipelines).These three strikes, though potentially reversible, nevertheless illustrate another reason why pipelines are pretty risky investments right now—especially those that carry natural gas. Already, the pandemic-induced drop in demand, its dangerous role in global warming and questions about whether it truly is a competitive transitional fuel have many wondering whether gas is headed the way of coal.“The alarming rate at which pipelines are leaking planet-warming methane is already catching the eye of regulators,” said John Hoeppner, head of U.S. stewardship and sustainable investments at Legal & General Investment Management America. As the energy transition to renewables accelerates, these issues could continue to raise costs for gas pipeline operators, especially if the industry can’t control emissions, he said.Still, this is far from the end of natural gas. After all, Warren Buffett is betting on the industry with his $9.7 billion deal for the assets of one pipeline. The fuel remains crucial to the prospect of developing cleaner energy from hydrogen, and is an easy way to quickly replace coal. The dirtiest of fossil fuels, incidentally, faces even tougher viability questions, with about 73% of coal plants predicted to be uncompetitive with renewables by as soon as 2025, according to Carbon Tracker.

Even if one, some or all of this week’s pipeline defeats are temporary, the losses (and the rising local and environmental opposition behind them) may scare off investors. Building expensive natural gas infrastructure may not make sense when there’s a reasonable chance pipeline operators will face significant public pushback. And making matters worse, the taxpayer subsidies the industry has relied on for years are starting to shrink.

“Tax and fiscal subsidies really shift the investment landscape,” said Bronwen Tucker, a research analyst at nonprofit Oil Change International, which works to track the true price of fossil fuels. The group found that, since the Paris Agreement was signed in 2015, G-20 countries have still been forking over at least $77 billion in public financing annually to the oil, gas and coal industries. That’s more than three times the amount of subsidies those countries offered to clean energy during the same, post-Paris period. Still, the International Energy Agency said last month that fossil fuel subsidies are starting to decline, with recent coronavirus-triggered price drops presenting an opportunity for nations to disengage. Subsidy declines are not necessarily fast enough to stop global warming, but they may be enough to do more damage to an already reeling fossil fuel industry.

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For now, however, the pandemic’s overall effect has been to prop up energy companies and their fellow travelers.

“Some countries are putting in good support for renewables and green transitions as government stimulus comes in, but overall we’re still seeing more support for fossil fuels than renewables,” Tucker said. “We know the fossil fuel sector is in decline and is going to have lots of ups and downs before being fully replaced by renewables.”

Sustainable Finance In Brief

Emerging markets are the next big frontier in ESG. Right now, environmental, social and governance investing only accounts for 0.2% of total assets under management in South Korea, 0.6% in Brazil and 1.4% in China.
Sunrun, the largest U.S. residential-solar company, surged to a record high share price after its $1.46 billion deal to buy rival Vivint Solar.
Pension funds are looking to improve their tracking of efforts to achieve United Nations sustainable development goals.
A rare high-coupon green “coco” bond debuted in Europe.
Japan, which has the highest per capita plastic consumption rate in the world, just required all retailers to start charging for plastic bags. The government aims to double its material recycling rate by 2030, requiring a five-fold expansion of plastic recycling capability.

Emily Chasan writes the Good Business newsletter about climate-conscious investors and the frontiers of sustainability.