COVID-19 pandemic has caused catastrophic damage to businesses and economies. With the world in lockdown and people not travelling from one place to another, the world is in a completely different avatar.?
However, the worst impact has been on the fossil fuel industry. And now a study has revealed that if this keeps going on it could cause $25 trillion in losses.
The report?by Carbon Tracker claims that the falling demand for fossil fuel amidst rise in investment risk levels will reduce the value of oil, gas and reserves by nearly two-thirds -- from $39 trillion to $14 trillion.?
As per the report, the fossil fuel industry was already threatened by competition from green tech and climate policies, and now COVID-19 pandemic has accelerated the whole situation.
A collapse like this could severely impact the financial stability of nations like Saudi Arabia, Russia, Iraq, Iran and Venezuela -- as fossil fuels have a major contribution to their economy. Moreover, the size of the fossil fuel economy too poses a considerable threat to global financial instability.
This is because their market values make up one-fourth of the world¡¯s equity markets and they owe trillions of dollars to world banks.
There are some companies, like Exxon that are still forecasting a positive future with continued growth and demand in fossil fuels and the fossil fuel system as a whole has invested $5 trillion a year on new supply and demand infrastructure.?
However, there are some companies that are showing us the weak crumbly nature of this industry. Whether it¡¯s Shell¡¯s dividend cut, Repsol¡¯s decision to write off $4.8 billion of assets last year as well as several companies in the oil industry going through bankruptcy, these are all signs for major structural changes in the industry.?
According to Kingsmill Bond, the author of the report, "We are witnessing the decline and fall of the fossil fuel system. Technological innovation and policy support is driving peak fossil fuel demand in sector after sector and country after country, and the COVID-19 pandemic has accelerated this. We may now have seen peak fossil fuel demand as a whole.¡±
He added, "This is a huge opportunity for countries that import fossil fuels which can save trillions of dollars by switching to a clean energy economy in line with the Paris Agreement. Now is the time to plan an orderly wind-down of fossil fuel assets and manage the impact on the global economy rather than try to sustain the unsustainable."