Are Coal, Oil and Gas Dead?

Almost any pundit or forecaster will tell you that oil, coal and gas are dead. But the reality is that they’re probably not dead, and they’re probably far from dead. There’s a reason for this. The balance of power in the world has shifted. Growth today comes from Asia. We may not see it, and we may not know about this while sitting in a nice office in Boston, New York, London, or Los Angeles, but the balance of power has shifted. In the West, if we say that coal is dead and we need to get our institutional investors to withdraw their equity holdings in coal, oil and gas companies, we could probably do that. Although, it would be better to continue investing in oil, coal and gas companies and force them to become carbon neutral because that’s the goal of climate change policy.

But it’s not going to matter as much because if Indonesia, Vietnam, China, India and other major growth markets of the world today need energy, they know that having a clean, carbon-neutral environment makes sense, and they’re making good decisions in that direction. But of course, they need energy, and there’s only so much energy they can get from carbon-neutral sources. It’s not possible that they’ll get all the energy they need from carbon-neutral sources, which means they’ll continue relying on oil, gas and coal for a large part of the future, whether because they need those energy sources, or they need them as feedstock for things like manufacturing steel.

The deep insight is that previously, when we made a decision in the West, we forgot that the underlying assumption, which turned out to be true, is that the decisions made in the West set the demand pace for the world and set the global standard. But that is no longer the case. If growth, or the majority of growth, shifts to a new part of the world, that part of the world sets the pace for the world. It sets the standard for the world. The entire Western world could phase out coal, oil and gas. It would make a big impact, but it wouldn’t lead to the end of coal, oil and gas. That’s something to think about as we think about climate change policies. We have to distinguish between what we want to happen and what is really going to happen. We may really want something to happen, but we have to put in place policies for what is actually going to happen.

This is an excerpt from Monday Morning 8 a.m. newsletter, issue #14.