'Unburnable carbon' report says fossil fuel reserves can't be exploited if climate change is to be checked
Wed 24 April 2013
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New research from Carbon Tracker and the Grantham Research Institute on Climate Change and the Environment at LSE says that revealed fossil fuel reserves already far exceed the carbon budget to avoid the world warming by 2°C. Consequently, it says, fossil fuel companies are greatly overvalued. The authors call for regulators, governments and investors to re-evaluate energy business models against carbon budgets, to prevent a $6trillion carbon bubble developing in the next decade.
Despite growing awareness that all known fossil fuel assets can never be exploited if climate change is to be restrained, companies spent $674billion last year to find and develop new potentially stranded assets.
Professor Lord Stern, Chair of the Grantham Research Institute on Climate Change said: “Smart investors can see that investing in companies that rely solely or heavily on constantly replenishing reserves of fossil fuels is becoming a very risky decision. The report raises serious questions as to the ability of the financial system to act on industry-wide long term risk, since currently the only measure of risk is performance against industry benchmarks.”
The report says that even if carbon capture and storage (CCS) is deployed in line with an idealised scenario by 2050, this would only extend fossil fuel carbon budgets by 125GtCO2
Company valuation and credit ratings methodologies do not typically inform investors about their exposure to these stranded assets, despite these reserves supporting share value of $4trillion in 2012 and servicing $1.27trillion in outstanding corporate debt over the same period. The report says that we need to challenge these methodologies.
The publishers produced a series of striking graphics to accompany the report and illustrate its conclusions. One of the key graphics, produced by Carbon Visuals, appeared on the front page of the Washington Post. (See link.)
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