Investors : beware of the carbon bubble

Carbon bubble reportFossil fuels are making less and less sense as renewable energies are becoming cheaper and cheaper and as climate change is becoming more and more serious. This is even more the case since we’ll have to leave most of it buried.

The Guardian, the Financial Times and the Economist published compelling articles on a new report that points that this situation could bring another financial crisis as up to six trillions dollars are linked to unburnable carbon.

This strong warning is backed up by banks such as HSBC, Citi, and organisations such as Standard and Poor’s and the International Energy Agency.

The introduction from the Economist’s article is just brilliant and encapsulates the problem :

” Either governments are not serious about climate change or fossil-fuel firms are overvalued. “

The report by The Carbon Tracker Initiative points out that economies around the world could have to face another major crisis as fossil fuels companies would be overvalued if we were to become serious in our fight against climate change.

Here is an extract of the excellent Economist article :

Several recent reports suggest that markets are now overlooking the risk of “unburnable carbon”. The share prices of oil, gas and coal companies depend in part on their reserves. The more fossil fuels a firm has underground, the more valuable its shares. But what if some of those reserves can never be dug up and burned?

If governments were determined to implement their climate policies, a lot of that carbon would have to be left in the ground, says Carbon Tracker, a non-profit organisation, and the Grantham Research Institute on Climate Change, part of the London School of Economics. Their analysis starts by estimating the amount of carbon dioxide that could be put into the atmosphere if global temperatures are not to rise by more than 2°C, the most that climate scientists deem prudent. The maximum, says the report, is about 1,000 gigatons (GTCO2) between now and 2050. The report calls this the world’s “carbon budget”.

As the official website points out :

  • Already in 2011, the world has used over a third of its 50-year carbon budget of 886GtCO2, leaving 565GtCO2
  • All of the proven reserves owned by private and public companies and governments are equivalent to 2,795 GtCO2
  • Fossil fuel reserves owned by the top 100 listed coal and top 100 listed oil and gas companies represent total emissions of 745GtCO2
  • Only 20% of the total reserves can be burned unabated, leaving up to 80% of assets technically unburnable

The Carbon Tracker Initiative gives recommendations. Please turn to page 28 of the report.

This really gives an excellent explanation of why Bill McKibben, the founder of the campaign is urging to divest from fossil fuels interests.

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