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Issue No. 73 - February 1, 2016

1. 2015 hottest year on record by far

On January 20, scientists from the NOAA (National Oceanic and Atmospheric Administration) and NASA (National Aeronautics and Space Administration) jointly announced their independent analyses of global surface temperature data for 2015, which showed that average global temperatures in 2015 were higher than at any time since records began in 1880, and considerably warmer than the last record-breaking year, which was 2014.

The earth’s average surface temperature has increased by about 1°C since the end of the 19th century. Most of the warming has occurred in the past 35 years. Fifteen of the sixteen warmest years on record have been since 2001. Cyclical patterns such as El Niño or La Niña (which warm or cool the tropical Pacific Ocean, respectively) have short-term effects on global temperatures. However, according to Gavin Schmidt, director of NASA’s Goddard Institute for Space Studies, the current El Niño pattern does not explain the extreme warming seen in 2015: "2015 was remarkable even in the context of the ongoing El Niño. Last year’s temperatures had an assist from El Niño, but it is the cumulative effect of the long-term trend that has resulted in the record warming that we are seeing."

The NOAA analysis, based on the same data as was used by NASA, but with a different baseline year, found that December 2015 was the warmest month of any month in the period of record, at 1.11°C higher than the monthly average. This was the first time that a monthly temperature was warmer than the average by more than 1°C. NOAA records show that the global annual temperature has increased at an average rate of 0.07°C per decade since 1880, and at an average rate of 0.17°C per decade since 1970.

As the oceans have absorbed 90% of global warming since 1950, it is the warming of the world’s oceans that is the best indicator of climate change. A study published January 18 in Nature Climate Change and summarised in the Guardian reveals that half of the warming in the oceans since the beginning of the industrial era has occurred in the past two decades.

2. Oil and gas bankruptcies reached $17.85 billion in 2015

Global Supply Overhang Set to Persist in 2016
Swift Energy, a Houston-based oil and gas company, filed for bankruptcy on December 31, 2015, with a total debt of $1.18 billion. This brought the total number of oil and gas bankruptcies for the year to 42, with a combined debt of $17.82 billion, reports Oil & Gas 360. The Federal Reserve Bank of Dallas, in its fourth quarter report for 2015, notes that oil and gas sector bankruptcies have reached levels last seen during the Great Depression, with at least 10 US companies filing for bankruptcies in the fourth quarter of 2015, with a total of $2 billion in debt, and that further bankruptcies may follow in 2016.

Bloomberg, in an article entitled "Some Bankrupt Oil and Gas Drillers Can’t Give Their Assets Away", reports that the four largest US banks have set aside at least $2.5 billion to cover energy loan defaults and intend to add to that amount if prices stay low. The article concludes with this comment from Terry Clark of White Marlin Oil & Gas Co.: "So much of the frenzy in shale in the past few years was a result of the money pouring out of Wall Street. It was as much a Wall Street play as it was an oil-and-gas play. It was putting money to work. Companies took on all that risk and now we see the result."

The downturn in the oil and gas industry is being reflected in pension fund losses, reveals new analysis from Advisor Partners, which found that the Teacher’s Retirement System of the City of New York lost about $135 million from stock in vestments in oil and gas companies in the fiscal year up to June 30th, 2015, with $39 of the losses accounted for by Exxon Mobil and Chevron alone.

According to Rahul Agrawal, CIO, Equities, for Advisor Partners, "Oil & gas companies are volatile investments. The fact that these companies underperformed both the US and broader global index by more than 25% confirms the riskiness of these companies. Portfolio managers should carefully reassess their exposure to these securities before investing in them."

3. Clean energy attracts $329 billion global investment in 2015

Global clean energy investment 2004-15, $bn

According to Bloomberg New Energy Finance, clean energy investment "surged" in 2015 to a record high of $328.9 billion, up 4% from 2013 and 3% from the previous record set in 2011. Global investment in clean energy has grown by nearly six times in dollar terms since 2004, despite the following four factors that might have been expected to restrain this growth:
  1. Declining cost of solar photovotaics (more capacity can be installed for the same price)
  2. Strength of US dollar (reduced dollar value of investments made in other currencies)
  3. Weak European economy (previously a driver of renewable energy investment)
  4. Falling fossil fuel prices.
According to Michael Liebreich, chairman of the advisory board at Bloomberg New Energy Finance:

"These figures are a stunning riposte to all those who expected clean energy investment to stall on falling oil and gas prices....Wind and solar power are now being adopted in many developing countries as a natural and substantial part of the generation mix: they can be produced more cheaply than often high wholesale power prices; they reduce a country’s exposure to expected future fossil fuel prices; and above all they can be built very quickly to meet unfulfilled demand for electricity. And it is very hard to see these trends going backwards, in the light of December’s Paris Climate Agreement."

The Bloomberg figures show that the largest proportion of the $328.9 billion investment was in utility-scale projects, such as wind farms, solar parks, biomass and waste-to-energy schemes, and small hydroelectric schemes. This investment was up 6% since 2014. Investment in rooftop and other small-scale solar projects was up 12% on 2014, led by Japan, followed by the US and China.

China was the largest investor in clean energy by far, with increased investment of 17%. Spending in the US was up 8%. Investment in Europe fell by 18%, to $58.5 billion, the lowest level since 2006.

Just ahead of the World Economic Forum in Davos, Switzerland, the International Renewable Energy Agency revealed that doubling the current market share of renewable energy to 36% by 2030 could boost global GDP by as much as 1.1%, adding between $706 billion and $1.3 trillion to the global economy. The report notes that the figures can be considered to be conservative as they do not account for other positive impacts of the investment in renewable energy, such as avoided negative impacts due to climate change, and the positive impacts of extending access to energy services. The report recommends that governments adopt "credible, time-bound renewable energy targets", backed up by "dedicated policies and regulatory frameworks", which "ensure [a] predictable revenue stream for projects, create a stable investment environment and can help to overcome non-economic barriers".

A survey of 750 experts conducted by the World Economic Forum found that climate change is seen as the largest potential threat to the global economy in 2016. This is the first time that climate change topped the list of economists’ concerns.

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