Over reliance on fossil fuels is driving companies to take unnecessary environmental risks as typified by the recent oil disaster in the Gulf Of Mexico.
That is the conclusion of a major new report from insurance giant Lloyd's and UK think tank Chatham House, which argues that a rapid shift towards low carbon energy sources represents the only way of tackling the energy industry's soaring risk profile.
The report, titled Sustainable Energy Security: Strategic Risks and Opportunities for Business, highlights how the risks faced by the oil industry have increased as it has been forced to shift its focus from relatively "easy" reserves to deep sea drilling sites, such as the one at the centre of the ongoing BP disaster.
The report cites a recent article from Canadian newspaper commentator Jeff Rubins, which predicts that the explosion at the Deepwater Horizon rig will impact the oil industry in manner comparable to the nuclear incident at Three-Mile Island in the US, which effectively put an end to the building of new nuclear planst for a generation.
"The real legacy of Three Mile Island wasn't what happened back in 1979, but rather what happened - or more precisely didn't happen - over the course of the next 40 years in the US," Rubins noted. "Literally overnight, the near-meltdown of the reactor core changed public acceptance of nuclear power plants. No company in the US has built a new one since."
Commenting on the report, Richard Ward, Lloyd's chief executive, said that the environmental and economic costs of fossil fuels are simply too high to justify on-going investments.
"The current generation of business leaders need to rethink their approach to energy risks or be left behind as energy becomes less reliable and more expensive," he said. "We need a long-term plan to reduce consumption and diversify our energy sources."
According to the Lloyd's report, up to $500bn a year needs to be invested in low carbon energy sources by 2050 in order to enable the shift away from fossil fuels, a transition that is likely to lead to significant business risks and opportunities.
"Businesses across the board need to make a serious assessment of their vulnerability to change and volatility on the energy scene," said Bernice Lee, research director at Chatham House. "There are huge opportunities as energy systems evolve to include users and increase resilience and efficiency. There is also the potential for heavy or even catastrophic financial and environmental losses."
BP has also admitted the similarities between Deepwater and the Three-Mile Island incident when the Three Mile Island Nuclear Generating Station in Dauphin County, Pennsylvania suffered a partial core meltdown and released radioactive gas into the local area.
Speaking at an event organised by Google last month, BP's recently appointed chairman Carl-Henric Svanberg surprised the audience by making the link. "It will be a game changer like Three Mile Island," he said, according to a report in The Times.
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