The Carbon Bubble: Unburnable Fossil Fuels & Investor Risk

Originally Published on the ECOreport

Business as usual is no longer a viable option for the fossil fuel industry. At the present rate of consumption, the world is heading towards a 6°C rise in global temperatures. Fossil fuel companies are exposing their investors to financial and climate risk. These were among the many topics discussed at the BC Sustainable Energy Association Webinar “The Carbon Bubble – Unburnable Fossil Fuels,” with Mark Campanale of the London-based Carbon Tracker Initiative.

Around 197 people attended the webinar, which was hosted by Guy Dauncey.

Campanale explained that the fossil fuel industry is currently operating at a disconnect with the approaching reality of climate change. Much of what they believe to be true will be challenged once it becomes apparent that 2/3 of current fossil fuel reserves cannot be commercialized before 2050 — if we hope to keep the temperature rise under 2°C.

There are three possible scenarios for how this realization will occur:

• Industry will make the necessary adjustments now, which is unlikely.
• Industry will wait until it is forced to make changes, which could result in a 6°C temperature rise being unavoidable.
• Investors will help steer their companies into the correct choices.

This third option has already started to happen. The Norwegian Pension Fund has already divested half of the money it had invested in coal. A number of US companies are reducing their investments in the oil sands.

This is important information for Canadians because, as Campanale explains, ”Canada’s reserves of fossil fuels are significantly larger than it’s fair share of a global carbon budget.”

Our proven oil, bitumen, gas, and coal reserves make up 18% of the “global carbon budget” (the amount of CO2 that can be produced before we go over the 2°C threshold) and we may have as much as twice the allowable amount.

That is bad news for people like Premier Christie Clark, who believe BC’s future lies in fossil fuels, because “78% of Canada’s proven reserves, and 89% of proven-plus-probable reserves, would need to remain underground.”

The coal industry could be one of the hardest hit sectors.

The International Energy Agency estimates that “only 20% of global coal reserves can be developed by 2050″ if we hope to stay within a two-degree temperature rise.

Citi Research argues that it is very likely the demand for thermal coal will flatten, or peak, even in China by 2020.

Production of gas and oil will also need to be reduced. This will hit the more difficult sectors, like the oil sands and marginal LNG fields, hardest.

Exxon, Shell, and Chevron have all been spending at record levels to boost their output, but this has yet to pay off. They cannot continue to spend more just to maintain production levels. The commercial viability of undeveloped reserves is questionable  unless development costs also fall.

The boards of fossil fuel companies must be made to realize that they are wasting their investors’ funds on high-cost carbon projects. There is at least a 20% chance of their falling prey to some future government preventative action against climate change. There is legal liability, as extreme weather events become more common. These are real dangers which are not being disclosed.

The most sensible course of action for fossil fuel companies is to trim back more costly ventures and attune their future course of actions to climate science.

For more information, go to :

• The BC Sustainable Energy Association Website, where Guy Dauncey has posted an introduction to Carbon Tracker’s Work and the Webinar pdf: 2014 02 11-webinar-the-carbon-bubble.pdf.
• The Carbon Tracker website: www.carbontracker.org