Carbon bubble: $6 trillion of new investments at risk
Giles Parkinson on 19 April 2013
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