Investors give ‘thumbs up’ to green energy

Don Stowers, Editor-OGFJ

Renewable energy sources, not including hydroelectric power, account for just 1% of the world’s supply, say the experts. Fossil fuels like oil, natural gas, and coal provide about 85%. Yet, nearly everyone concedes the importance of renewable energy - wind, solar, tidal, and even nuclear - as the world attempts to meet the energy needs of its 6.5 billion or so residents.

The oil and gas industry is as eager as many environmentalists to find alternatives to fossil fuels because it sees supply dwindling. Similarly, the Edison Electric Institute, the association that represents US investor-owned utilities, says the move toward renewable energy is inexorable.

Now comes a survey by Deloitte & Touche LLP that says an overwhelming majority of US oil and gas investors (81%) support “green” energy investments. The survey, conducted in late 2005, indicates that oil and gas stock owners support industry investment in renewable energy initiatives, such as solar, wind, and geothermal.

“It is eye-opening to see the level of support for green energy by individuals who choose to own oil and gas company stocks,” said Greg Aliff, vice chairman and national managing partner of Deloitte’s energy and resources group. “For example, when asked about capital utilization, 39% preferred that the company invest in green alternatives, while only 18% preferred increased dividends - a 2:1 ratio favoring green investments over increased dividend payments.”

Oil and gas companies are not disappointing these investors. BP has created an alternative energy group and has been investing heavily in solar, wind, and hydrogen power initiatives. Shell is one of the largest owners of wind “farms” in Europe. Chevron is spending millions on advanced research into making cellulosic biofuels (wood fiber and switchgrass) and hydrogen viable transportation fuels.

Most recently, Houston-based Marathon Oil Corp. said it plans to enter into a 50/50 joint venture with The Andersons Inc., a diversified company with strong agricultural interests, with the intent to construct and operate a number of ethanol plants. Marathon has been blending ethanol in gasoline for more than 15 years.

The Deloitte survey results also show that US oil and gas investors are more than twice as likely to own the stock of a super major (54%) than that of an independent (22%). About 13% own stock in both super majors and independents.

For renewables to thrive, it is generally agreed that governments need to offer incentives. This is a preferred option to penalizing producers or consumers of fossil fuels - a so-called “carbon tax.” Japan, for instance, offers generous tax breaks for constructing solar-powered buildings. Some US cities and states also offer incentives.

Energy companies and consumers alike in the US seem to prefer reward over punishment as a motivator. Punishing consumers when they have no real alternatives, and hitting companies that are merely responding to consumer demand with a heavy tax burden are both counter-productive measures.

Market forces are already at work shaping the role renewable energy will play in our future. Let’s not stifle this natural development with excessive government interference.