By Deirdre Fulton
‘As the world increasingly limits carbon emissions, and moves to alternative energy sources, investments in fossil fuels…may take a huge hit,’ predicts one of Europe’s oldest banks
“One live risk right now is of insurers investing in assets that could be left ‘stranded’ by policy changes which limit the use of fossil fuels,” Bank of England official Paul Fisher told (pdf) the Economist’s Insurance Summit 2015 in London on Tuesday. “As the world increasingly limits carbon emissions, and moves to alternative energy sources, investments in fossil fuels and related technologiesâ€”a growing financial market in recent decadesâ€”may take a huge hit.”
Reserves are by definition bodies of oil, gas or coal that can be drilledÂ or mined for financial gain. Currently, regulators allow companies to book them asÂ assets, and on the assumption that they are at zero risk of being strandedâ€”left below ground, “value” unrealizedâ€”over the full life of theirÂ exploitation.
Wasteful and Crippling Explorations
But several recent analyses have shown that most existing reserves of fossil fuels cannot be burned if global warmingÂ is to be limited to 2Â° Celsius, as the world’s nations have pledged. A study in January found that to avert climate disaster, the majority of fossil fuel deposits around the worldâ€”including 92 percent of U.S. coal, all Arctic oil and gas, and a majority of Canadian tar sandsâ€”must stay in the ground.
Despite such warnings, the Guardian notes, “companies spent $670bn (Â£436bn) in 2013 alone searching for more fossil fuels, investments that could be worthless if action on global warming slashes allowed emissions.”
The newspaper further cites former U.S. Treasury Secretary Hank Paulson, who said in 2014: “When the credit bubble burst in 2008, the damage was devastating. Weâ€™re making the same mistake today with climate change. We’re staring down a climate bubble that poses enormous risks to both our environment and economy.”
Change is Coming: Divestment and Other Fall-outs
These economic concerns have bolstered a vibrant and growing fossil fuel divestment movement around the world. AsÂ Common Dreams reported in December, “the elite investor class and world leaders have been much slower to admit the Earth has limits to the amount of carbon and other greenhouse gases it can absorb.”
However, as University of Queensland economics professor John Quiggin wrote last year: “Leaving aside the ethics of divestment and pursuing a purely rational economic analysis, the cold hard numbers of putting money into fossil fuels don’t look good.”
Since 2012, the London-based Carbon Tracker Initiative has warned of how the governing financial systemâ€”in its gross over-valuation of fossil fuel reservesâ€”leads to “capital being wasted on carbon intensive projects that are not certain to generate value, and are not consistent with the coming carbon constrained world.”
When the Bank of England announced its new research agenda last week, acknowledging for the first time systemic environmental risks such as climate change, Carbon Tracker Initiative research director James Leaton said: “It is encouraging to see this major central bank seeing the need to move with the times and understand its role in dealing with one of the major challenges facing our economies today: climate change. We hope to see other financial regulators around the world responding in a similar fashion and collaborating on this issue.”
Where Would You Put Your Money?
According to the Carbon Tracker Initiative’s calculations, up to 80 percent of oil, gas andÂ coal reserves listed on stock exchanges are unburnable.
“The six trillion dollar bet is that thisÂ calculation remains entirely theoretical, and that fossil-fuel companies willÂ be allowed to keep pumping up the carbon bubble by investing more cash to turnÂ resources into reserves, and continue booking them at full value, assuming zeroÂ risk of devaluation,” environmentalist Bill McKibben and Carbon Tracker chairman Jeremy Leggett wrote in 2013. “It’s a bet that effectively says to government: ‘nah, weÂ donâ€™t believe a word you say. We think youâ€™ll do nothing about climate changeÂ for decades’.”Î¦
Deirdre Fulton is a Common Dreams staff writer.