Lord Stern, professor at the London School of Economics, warns that the world could be heading for a major economic crisis as stock markets inflate an investment bubble in fossil fuels to the tune of trillions of dollars.
The so-called “carbon bubble” is the result of an over-valuation of oil, coal and gas reserves held by fossil fuel companies. According to the LSE/Carbon Tracker report, supported by HSBC, Citi, Standard & Poors and the International Energy Agency, at least two-thirds of these reserves will have to remain underground if the world is to meet existing internationally agreed 2 degrees C targets to avoid the threshold for “dangerous” climate change. If the agreements hold, these reserves will be in effect unburnable and so worthless – leading to massive market losses.
Stern said that far from reducing efforts to develop fossil fuels, the top 200 companies spent $674bn (£441bn) in 2012 to find and exploit even more new resources, a sum equivalent to 1% of global GDP, which could end up as “stranded” or valueless assets. Stern’s landmark 2006 report on the economic impact of climate change – commissioned by the then chancellor, Gordon Brown – concluded that spending 1% of GDP would pay for a transition to a clean and sustainable economy.
The world’s governments have agreed to restrict the global temperature rise to 2C, beyond which the impacts become severe and unpredictable. But Stern said the investors clearly did not believe action to curb climate change was going to be taken.
HSBC warned that 40-60% of the market capitalisation of oil and gas companies was at risk from the bubble, with the top 200 fossil fuel companies alone having a current value of $4tn, along with $1.5tn debt.
(Adapted from an article in The Guardian 4/19/2023)
Of course, few people really believe that world governments are really going to seriously reduce carbon emissions, so the stupid, short-sighted party will continue, propped up with cash from the oil and mining moguls. So will we fry or will have a catastrophic depression? Keep calm and enjoy the fruits of the garden, and remember that you cannot control the future.
The report calculates that the world’s currently indicated fossil fuel reserves equate to 2,860bn tonnes of carbon dioxide, but that just 31% could be burned for an 80% chance of keeping below a 2C temperature rise. For a 50% chance of 2C or less, just 38% could be burned.
Carbon capture and storage technology, which buries emissions underground, can play a role in the future, but even an optimistic scenario which sees 3,800 commercial projects worldwide would allow only an extra 4% of fossil fuel reserves to be burned. There are currently no commercial projects up and running. The normally conservative International Energy Agency has also concluded that a major part of fossil fuel reserves is unburnable.
Citi bank warned investors in Australia’s vast coal industry that little could be done to avoid the future loss of value in the face of action on climate change. “If the unburnable carbon scenario does occur, it is difficult to see how the value of fossil fuel reserves can be maintained, so we see few options for risk mitigation.”