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Investors beware unburnable carbon

An LSE report ‘Unburnable Carbon 2013′ has produced some startling conclusions – for investors, not just climate change policy-makers. What they show is that burning known reserves of fossil fuels is incompatible with the climate change targets which governments have committed themselves to meet, so that investors would be wise to discount both the value and the returns of any future investments in the fossil fuel industries and be aware that this expenditure could turn out to be stranded assets. In other words, if governments tighten carbon and other greenhouse gas emissions or even, in the face of widespread climate catastrophes in the developed world, enforce a rapid transition out of fossil fuel dependence, investors will face huge losses.

The report sets out the figures starkly. Governments in 2010 pledged to restrain emissions so as to prevent average global temperatures rising more than 2C above pre-industrial levels (i.e. 1760 when the industrial age began) as a virtualworldwide scientific consensus concluded was necessary to prevent catastrophic consequences across the planet. If that target is to be achieved, then global CO2 emissions must increase by no more than 900-1,075 gigatonnes (billion tonnes). Carbon capture and storage, if it ever proves commercially viable, would help a bit but not much. Removing a flow of 8 gigatonnes of carbon dioxide a year would require nearly 3,800 plants, and even then unabated emissions would have to fall sharply.

The here’s the catch. The World Energy Outlook 2012 believes that if existing reserves of fossil fuels were burnt without CCS (which would anyway make little difference), it would release some 2,680 gigatonnes. That is almost 3 times the global carbon budget permitted to keep within the 2C target. So who controls these emissions? Listed companies on the world stock exchanges hold reserves which will yield 760 gigatonnes, about a quarter of the global total.

The remaining three-quarters are owned mainly by the Ugly Sisters, the big international oil companies. What all this means is that if the temperature rise is to be kept within the 2C limit, both the listed companies investors and the oil companies cannot exploit more than a third of the reserves they currently hold, let alone any future discoveries. Unless the governments of the world wholly renege on the targets they have solemnly pledged to observe, both investors and oil companies will find themselves holding stranded assets and investing in ones that can’t be used.

Exxon Mobil, the leading Ugly Sister, of course dismisses the 2C target. With weasel words they argue that “the damaging impact to accessible, reliable and affordable [they should ask their customers] energy resulting from the policy changes….are beyond those that societies, especially the world’s poorest and most vulnerable, would be willing to bear”. Their concern for the world’s poor is really touching. What they really mean of course is that they will fight to the last oz of oil to maximise their profits, and stuff the planet’s well-being. Only this time, given the pace of advance of climate change, their luck may finally run out.

One Comment

  1. Robert says:

    Gosh for a site like this I would have thought we would be talking about Cruddas and the politics of the poor the sick the disabled and a labour party turning into a Tory Lite party.

    But if people think carbon is more interesting well fine.

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