Sovereign Wealth Funds: How to (Indirectly) Turn Coal into Wind Turbines.

Whether we like it or not, fossils fuels are a major part of our daily lives.  The energy from coal, natural gas, and oil provides electricity for countries across the world and powers the majority of transportation systems. The environmental movement rightfully antagonizes nonrenewable energy sources, as they are a primary driver of climate change, but unfortunately for the world, they are not disappearing anytime soon.  However, there exists a way in which the world can use fossil fuels as a way to develop a clean energy future.  But exploiting fossil fuels for a clean energy future?  The concept seems far-fetched and paradoxical, but it actually currently exists in practice.  

High up in the Northern Scandinavian Peninsula, the small country of Norway had a simple economy for most of its history, relying on fish exports, timber production, and maritime services.  However, Norway would never be the same after the discovery of vast oil and natural gases in the North Sea off the shore of Norway.  By the 1970’s, Norway had become one of the world’s chief oil and natural gas exporters, the country’s GDP skyrocketed to one of the highest in the world and the Norwegian economy was completely reshaped around fossil fuel exports.

Shortly after Norway’s fossil fuel boom, the Norwegian government created a sovereign wealth fund, known as The Oil Fund, to invest the surplus of Norway gas and petroleum revenue.  The establishment of The Oil Fund is a prime example of how Norway is using its fossil fuels to push for a clean energy future.  Norway knows that oil and gas is a finite resource and this fund is a way to help prepare and diversify the country’s economy before the North Sea runs out of profitable fossil fuels.  The Oil Fund not only represents a commitment to Norway’s financial future, but the world’s environmental future.  Recently, Norway announced that The Oil Fund was going to double its investments from 7 billion to 14 billion into global renewable energy projects, a massive sum of money that will go into backing the development and implementation of renewable energy systems.  Overall, the creation of a sovereign wealth fund has allowed the Norwegian government to use oil money to advance renewable energy causes and further Norway’s commitment to the environment.

Norway has found a way to use monetary gains of exporting oil and gas to address the financial roadblocks that are inhibiting a future powered primarily by renewable energy sources. One of the main barriers to implementing renewable energy systems is the high upfront cost of clean energy infrastructure.  However, with Norway investing billions of dollars in renewable energy development projects and companies across the world, the financial strain of thousands of clean energy projects will be relieved. Lower costs of renewables can help make clean energy more prevalent across the world.  In this manner, Norway has found a way to take profits from fossil fuels and turn that money into developing renewable energy infrastructure for a clean energy future.

Analysis: Other countries with sovereign wealth funds should follow Norway’s lead and use fossil fuel profits to transform their energy infrastructure.

Norway is unique because, despite their massive petroleum and gas industry, the country supplies almost 100% of their domestic electricity needs with renewable energy. As a country filled with massive waterfalls and powerful fjords, Norway is able to meet nearly all electricity demand with clean hydroelectric power.  Since Norway already has an incredible renewable energy infrastructure, Norway’s Oil Fund decides to use its money to invest in clean energy projects in other countries.  

There are 45 countries with sovereign wealth funds, many of them originating from oil and gas profits, but unlike Norway, the majority of these countries have poor renewable energy infrastructure.  These countries can use their sovereign wealth funds to supply the necessary capital needed to invest in renewable energy production within their own country. By investing money from a sovereign wealth fund into domestic clean energy projects, countries can lower their carbon dioxide emissions, reduce their dependency on a fossil fuel economy, and better position themselves for both a clean energy future.

Saudi Arabia is a prime example of a country that can benefit from this strategy.  Saudi Arabia already has an extremely prosperous sovereign wealth fund from oil exports, the Public Investment Fund (PIF), yet the country gets less then 1% of its electricity from clean energy sources.  If the PIF uses a portion of its fund to develop renewable energy, such as solar panel fields to take advantage of the sunlight in the Arabian Desert, the country could see a huge decrease in their greenhouse gas emissions.  This is just one example of the many countries that can use their fossil fuel sovereign wealth funds to revamp their energy systems to include renewables.

Conclusion

Fossil fuels are not going anywhere in the near future.  Every day, society will still be powered by carbon-intensive coal and natural gas because it is not currently feasible to supply the world with 100% clean energy.  Until that day when the world can be fully powered by renewables, fossil fuels will supply a portion of energy needs.  However, sovereign wealth funds are one unexpected way in which fossil fuels can indirectly turn into renewable energy systems.

As long as the world has to burn fossil fuels to meet energy and electricity demands, the world might as well make the most of it.  Sovereign wealth funds provide a key opportunity to turn coal and natural gas production into renewable energy infrastructure through investment.  If the world needs to be powered by fossil fuels, the next best alternative is to make sure the profits from petroleum, coal, and natural gas are used to fund renewable energy projects.  Investing more money from sovereign wealth funds into renewable energy projects not only helps reduce carbon emissions and sets up a clean energy future, but it will also help prepare countries for an economic future when fossil fuels run out, but renewable energy keeps on going.  

Bibliography

Image Credit: https://www.pionline.com/article/20170612/PRINT/306129997/the-delicate-balance-of-investing-in-energy

Carrington, D. (2019, April 05). 'Historic breakthrough': Norway's giant oil fund dives into renewables. Retrieved from https://www.theguardian.com/environment/2019/apr/05/historic-breakthrough-norways-giant-oil-fund-dives-into-renewables

Saudi Arabia - Renewable energy consumption (% of total final energy consumption). (n.d.). Retrieved from https://tradingeconomics.com/saudi-arabia/renewable-energy-consumption-wb-data.html

The History of Energy in Norway. (n.d.). Retrieved from https://www.planete-energies.com/en/medias/saga-energies/history-energy-norway