The research is delivered as a warning to asset managers, shareholders and bankers
Call it an act of the greatest folly, or simply one of greed. But it seems that the world’s energy companies are hell-bent on spending up to $6 trillion of shareholder funds and bank debt in the next decade on fossil fuel investments – assets that could well become stranded and worthless if the world acts to limit climate change.
This is the conclusion of a new report on the so-called “Carbon Bubble”, which highlights the fact that the bubble is getting bigger. It now estimates that between 60 and 80 per cent of the coal, oil and gas reserves of publicly listed companies could be classified as unburnable if the world is to achieve emissions reductions that offer the greatest chance of limiting average global warming to 2°C.
Research by Carbon Tracker and the Grantham Research Institute on Climate Change and the Environment at London School of Economics and Political Science shows that 200 major listed companies own 762 billion tonnes of carbon dioxide (CO2) through their reserves of coal, oil and gas. These reserves currently supports share value of $4 trillion and service $1.5 trillion in outstanding corporate debt.
But to achieve emissions reductions consistent with an 80 per cent chance of achieving the 2°C target, the fossil fuel reserves of these listed companies would likely have to comply with a budget of just 125 billion tonnes to 275 billion tonnes of CO2. That means cutting them by three quarters or more, even more than that estimated last year by the International Energy Agency.
To make matters worse, a further $674 billion was invested in new fossil fuel investments in 2012, and at the current rate more than $6 trillion will be invested over the coming decade – much, or even all of which could become stranded assets.
The research is delivered as a warning to asset managers, shareholders and bankers, but it comes in the same week that the principal market signal on climate change action, the international carbon price, plunged to new lows in Europe after the failure of the EU parliament to solve the damaging impact of a huge surplus of free and unused carbon credits.
The collapse of the carbon price is being painted as a failure of the market based system, when in fact it is really a failure of political will. In Australia, true to form, the mainstream media has been led by the political spin-doctors to focus on what amounts to economic trivia – the impact that a lower carbon price could have on forward estimates of budget revenues.
The larger and most significant implications, that of the need for companies to have an incentive to invest in action to decarbonise one of the world’s most emissions-intensive economies, is largely ignored. And don’t think that corporate Australia is not stupid enough to ignore what is clearly one of the key global mega-trends. The speech by Tony Shepherd, the chair of the Business Council of Australia, was confirmation of that – recognizing that Australia’s response to climate change was somewhere between “half-hearted and non-existent”, but at the same time calling on the government to effectively dismantle the very schemes that encourage the required investment.
Too many in corporate Australia will use any excuse to avoid the inevitable, in the interest of short term returns, and this has become the de-facto policy of the Coalition government-in-waiting, which has upped its calls to scrap the whole idea of a carbon price. Analysts say this is a really bad idea, even if you are supposedly concerns about short term “competitiveness.” It was interesting that Chinese authorities were making clear overnight that the European price collapse would have no impact on its own plans for an ETS.
The Carbon Tracker research may appear dramatic, but the concept of a carbon bubble is steadily gaining traction among funds managers, analysts, and advisors. Apart from the IEA clarion call last year, Citi last month reached a similar conclusion about the potential impact of concerted climate action, depending on its timing. It noted that fossil fuel companies would be motivated to extract their assets as quickly as possible – an action that the BCA seems happy to endorse, and facilitate.
Professor Lord Stern of Brentford, chair of the Grantham Research Institute on Climate Change and the Environment, and he of the eponymous report on climate economics, said smart investors can already see that most fossil fuel reserves are essentially unburnable because of the need to reduce emissions in line with the global agreement by governments to avoid global warming of more than 2°C.
“They can see that investing in companies that rely solely or heavily on constantly replenishing reserves of fossil fuels is becoming a very risky decision. But I hope this report will mean that regulators also take note, because much of the embedded risk from these potentially toxic carbon assets is not openly recognized through current reporting requirements.”
Stern said that the report raises serious questions as to the ability of the financial system to act on industry-wide long term risk, since currently the only measure of risk is performance against industry benchmarks.
Paul Spedding, an oil and gas analyst at HSBC, said described the scale of unburnable carbon assets in listed companies as “astonishing”, and added ‘business-as-usual’ is not a viable option for the fossil fuel industry in the long term.
“Management should already be looking to new business models that reduce the risk of stranded assets destroying shareholder value, In future, capital allocation should emphasise shareholder returns rather than investing for growth,” he said
Jens Peers, chief investment officer for Sustainable Equities
at MIROVA, was even more damming. “It is still shocking to see the numbers, as they are worse than people realise. It is frightening that risk is not properly distributed and this needs to be cleaned up.”
The Latest Bing News on:
- Sibling Rivalry: 2022 Mazda CX-5 Vs. 2023 Mazda CX-50on November 28, 2022 at 7:27 am
Each vehicle was pushed and pounded, loaded with gear, driven through snow, driven through towns and in cities and up and down mountains.
- Another tech bubble bursts: 2022 has been brutal for Silicon Valley workerson November 27, 2022 at 10:16 am
The breadth of the layoffs this year is breathtaking, affecting every part of the tech sector from farming robots and cryptocurrency to social media and semi-autonomous vehicles.
- Stripping carbon from the atmosphere might be needed to avoid dangerous warming—but it's a deeply uncertain prospecton November 25, 2022 at 7:11 am
This means attention is turning to other options for climate action, including large-scale carbon removal. Carbon removal refers to human activities that take carbon dioxide from the atmosphere ...
- Soldier took his own life after depression triggered by carbon monoxide leak in tank, inquest hearson November 24, 2022 at 1:06 pm
Michael Miah became a ‘recluse’ after he was forced to jump from an armoured vehicle before vomiting and passing out during an exercise ...
- Voluntary Carbon Credit Demand to Soar as Companies Are Urged to Meet Climate Goalson November 24, 2022 at 7:34 am
Demand for voluntary carbon credits is expected to increase 5-10 times in the next ten years, 8-20 times by 2040, and 10-30 times by 2050, resulting in expected shortages. Analysts predict a ...
- New law requires New York cryptocurrency mining to use renewable energyon November 23, 2022 at 6:43 am
New York Gov. Kathy Hochul has signed a new law banning cryptocurrency mining that uses carbon-based energy. The law requires crypto mining companies to use 100% renewable energy.
- Reducing the carbon footprint of online retailon November 22, 2022 at 10:29 pm
E-commerce platforms are cutting waste and using cleaner energy, but experts say more needs to be done about Scope 3 emissions.
- A nanoscale view of bubble formationon November 21, 2022 at 4:00 pm
Using computer simulation, a research team succeeded in modeling the behavior of molecules at the liquid -- gas interface at the nanometer scale, enabling them to describe the boiling process with ...
- Chinese shipyard builds two large liquid CO2 vessels for Norway, helps advance Europe's carbon neutrality goalson November 21, 2022 at 8:24 am
A Chinese shipyard has begun building two of the world's first 7,500 cubic meter liquid carbon dioxide vessels for a Norwegian company, which will be used in a European carbon dioxide capture and ...
- A nanoscale view of bubble formation: New model describes the boiling process with much greater precisionon November 18, 2022 at 9:17 am
When a liquid boils in a vessel, tiny vapor bubbles form at the bottom and rise, transferring heat in the process. How these small bubbles grow and eventually detach was previously not known in any ...
The Latest Google Headlines on:
[google_news title=”” keyword=”Carbon bubble” num_posts=”10″ blurb_length=”0″ show_thumb=”left”]
The Latest Bing News on:
Fossil fuel investments
- Investment Fund Boycotts These 29 Companies Hostile to Conservative Valueson November 28, 2022 at 12:24 pm
At a time when many conservatives are fed up with woke corporations and seeking alternatives, Ridgeline Research is offering an investment option that boycotts 29 companies hostile to conservatives.
- Alberta's E3 Lithium says investment from Ottawa sets it up to lead mining boom on Prairieson November 28, 2022 at 10:51 am
Funding of E3 Lithium is part of a series of steps taken by Canada to ensure EV production occurs close to home ...
- Lærernes Pension to divest from fossil fuel companies not committed to energy transitionon November 28, 2022 at 10:36 am
Danish pension provider Lærernes Pension will divest 2 billion Danish kroner in companies not committed to Paris Agreement goals.
- Our US$10 trillion global energy bill dwarfs what’s needed to limit global heatingon November 28, 2022 at 8:58 am
The world’s energy bill for 2022 is set to be the highest ever, topping US$10 trillion (£8.3 trillion). This is the total price paid for all forms of energy across all sectors by all people. Something ...
- Pennsylvania boosts carbon capture research with investment in state geological surveyon November 28, 2022 at 7:07 am
Pennsylvania is positioning itself as a hub for carbon capture and storage as a way to eliminate greenhouse gas emissions from fossil fuels.
- Canadian Banks Slammed For Continued Fossil Fuel Investmentson November 28, 2022 at 7:00 am
Investors are levying strong critiques against Canadian banks for their continued investments in fossil fuel projects despite the country’s climate pledges ...
- The ‘Energy Transition’ Has Arrived. It Won’t Be Smoothon November 28, 2022 at 6:00 am
The world is changing its entire system for producing and using energy, and it’s a bumpy ride. The “energy transition” now underway will replace the very base of the global economy — fossil fuels — ...
- Should FuelCell Energy Be Your First Hydrogen Play?on November 27, 2022 at 10:13 pm
FuelCell is set to benefit materially from the recently passed Inflation Reduction Act. See why FCEL stock shouldn't be considered at this time.
- Environmental Advocates Call on Gov.-Elect Wes Moore to Roll Back State Funding for Fossil Fuel Industryon November 25, 2022 at 2:00 am
Contrary to Maryland’s climate and clean energy goals, the Maryland Energy Administration has announced $9.25 million in grants for expanding natural gas infrastructure in the state, angering ...
- Renewable Energy isn’t Replacing Fossil Fuel Energy—It’s Adding to Iton November 23, 2022 at 10:50 pm
Despite all the renewable energy investments and installations, actual global greenhouse gas emissions keep increasing. That’s largely due to economic growth: While renewable energy supplies have ...
The Latest Google Headlines on:
Fossil fuel investments
[google_news title=”” keyword=”fossil fuel investments” num_posts=”10″ blurb_length=”0″ show_thumb=”left”]