Investors beware: if something sounds too good to be true, it probably is

Flemming Heden  By Flemming Heden, Senior Engagement Manager at GES

A few days ago I received promotional material for the USD 1.4 billion SaskPower Boundary Dam project, a Carbon Capture and Storage (CCS) installation. The installation is claimed to result in the “equivalent to taking more than 250,000 cars off Saskatchewan roads annually.” The text enthusiastically argues that the project for the first time can demonstrate that it is economically and technically possible to continue to use coal and at the same time protect the climate. What’s not to like, right? Well, quite a lot actually.

First, you should know that this is not just anyone making these claims. The World Coal Association (WCA), based in the heart of London’s financial district, boasts that its members account for 28 per cent of global coal production and 36 per cent of coal exports. Coal, of course, has long been – and still is – a key pillar supporting the world economy. This is problematic since coal use at the same time is one of the main causes of global warming which threatens that very world economy.

What SaskPower and WCA conveniently forget to make clear is that the whole economic case for the project is that the captured greenhouse gas can be sold to the oil industry which pumps it into oil wells that are near depletion. The oil industry calls this Enhanced Oil Recovery though carbon dioxide flooding. The gas lubricates and forces up to the surface, as far as we know, an amount of oil equal* to releasing at least twice as much greenhouse gas in the atmosphere as SaskPower started with. By using SaskPower and WCA’s way of counting this is adding cars to the Saskatchewan roads, making the balance approximately 800,000 more cars than what they claim.

Investors are currently working hard around the globe to figure out how to make prosperous investments without wrecking the climate. Their understanding of the risks and opportunities is developing rapidly and this is very encouraging. But investors often lack the necessary deeper insights that would insulate them from throwing good money into this and many other dead-end projects.

What investors are nevertheless beginning to understand is that there is no point in stalling the transformation to a low carbon economy, that the transformation actually should have started yesterday, that carbon pricing is your friend around the corner, and that it is therefore time to start running really fast so as not to be outpaced. And as this is happening, it would be very helpful if misleading information stopped, so that investors do not start running in the wrong direction.

* Heddle, G et al, 2003, p. 33


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