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Plans to phase out fossil fuels need reality check – JP Morgan

Plans to phase out fossil fuels need reality check – JP Morgan

JP Morgan has warned that the world needs a reality check on its move from fossil fuels to renewable energy, adding that it may take generations to hit net-zero targets.

In a new report sent to clients, the US investment bank said efforts to reduce the use of coal, oil and gas had been set back by higher interest rates, inflation and wars in Ukraine and the Middle East.

Christyan Malek, head of global energy strategy at JP Morgan said “While the target to net zero is still some time away, we have to face up to the reality that the variables have changed.”

“Interest rates are much higher. Government debt is significantly greater and the geopolitical landscape is structurally different. The $3tn to $4tn it will cost each year come in a different macro environment,” he said.

Malek projected that governments would be pressured to abandon more aggressive energy plans due to the levels of investment necessary. The Scottish government said on Thursday that it was abandoning its ambitious ambition to reduce carbon emissions by 75percent by 2030, citing impracticality.

In its report, JP Morgan said changing the world’s energy system “is a process that should be measured in decades, or generations, not years”.

It added that investment in renewable energy “currently offers subpar returns” and that if energy prices rose strongly, there was even a risk of social unrest.

The report was released following the reduction of climate targets by oil companies, such as Shell and BP, and the failure of hundreds of other businesses, such as Microsoft, Unilever, and JBS, to set objectives that were sufficiently ambitious to be accepted by the Science Based Targets initiative, a validation body established following the UN COP26 climate summit in Glasgow.

Malek also observed that, since the populations of developing countries was starting to purchase more vehicles and travel by air, there was no certainty that the demand for petrol and oil would peak in 2030 as the International Energy Agency had projected .

According to JP Morgan, by 2030, the world will need 108 million barrels of oil per day; an additional 2 million barrels per day could be needed if more wind, solar, and electric car capacity is built.

Malek said, “We are at a tipping point in terms of demand. More and more of the world is getting access to energy and a greater proportion want to use that energy to upgrade their living standards. If that growth continues it puts huge pressure on energy systems and on governments”.

JPMorgan is a leading financier of fossil fuel projects and low-carbon energy projects. The bank underwrote $101bn of fossil fuel deals in 2021 and 2022, and $71bn of low-carbon deals, according to data from BloombergNEF.

Nigeria, Africa’s largest oil producer and the continent’s most populous nation, is heavily reliant on fossil fuels. Roughly 90 percent of the country’s export profits and 80 percent of the government’s revenue comes from oil and gas. Although this reliance boosts the economy, it has a negative impact on the environment.

In 2022, the Federal Government of Nigeria launched the Energy Transition Plan (ETP), recognizing the opportunities and challenges associated with moving away from fossil fuels.

The plan places an emphasis on renewable energy and lays out a strategy to lessen Nigeria’s reliance on fossil fuels.

It aims for net-zero emissions by 2060 and proposes gas commercialization until 2030, then a gradual fossil fuel phase-out.