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. Continue reading →