A recent conference in Germany on geothermal energy was filled with oil and gas industry representatives. Why? Because they saw great potential for transitioning their drilling and exploration technologies to geothermal energy instead of fossil fuels, and Germany is committing heavily to geothermal power. Yet many companies there complained of the difficulty of obtaining finance because their businesses and pedigrees weren’t green enough.
Transition finance to support such companies in such moves sounds like an unalloyed environmental and social good. With no need to reinvent the wheel, it can preserve expertise and jobs, while bringing the world closer to net zero and a sustainable future.
But there are serious philosophical as well as practical issues surrounding transition finance. Of course it benefits the world if projects and strategies that reduce rather than eliminate global warming are implemented and financed. Moving such calculations into a relative rather than an absolute framework also has the benefit of cutting out the purist end of the green movement that tends to discredit the overall thesis and erode consensus.
But this requires much more discipline because it opens the doors to overt greenwashers acting in bad faith. For instance, a recent much-publicised claim in Australia that the country could reap up to a US$600 billion windfall from carbon capture was based on data from Wood Mackenzie, an energy sector company, and heavily promoted by fossil fuel lobbyists.
Falling for the carbon capture argument poses two risks. One is the obvious one that it simply facilitates fossil fuels and ultimately promotes global warming. The other is that it diverts investor attention from just how at risk fossil fuel assets are and increases the danger of investor money getting tied up in stranded assets. Carbon capture is just one instance of wolves in sheep’s clothing arguments, advanced by those looking to keep their damaging operations alive and afloat.
“The solutions are here, now is the time to implement them,” according to a Deloitte report last November on financing the green energy transition.
Why invest in transition finance to keep old propositions alive when the new ones have already arrived? Yes, Deloitte acknowledged that solutions such as renewables, clean electricity and green hydrogen are very capital intensive and face many investment barriers. Still, overcoming those difficulties could be less costly than tying up more capital in stranded assets amid ever more severe and costly climate damage.
Transition finance is doubtless necessary – and an opportunity – in the short and even medium term. Hopefully though, there will be be a transition out of transition finance sooner rather than later.
