Beware of the carbon bubble: The biggest threat to the environment you haven’t heard of yet

Forget the housing and tech bubbles -- this is the real reason to worry in 2014. Thanks, energy companies!

Topics: Environment, carbon, Carbon bubble, Gas, Oil, Editor's Picks, Energy, Green energy, , ,

Beware of the carbon bubble: The biggest threat to the environment you haven't heard of <em>yet</em> (Credit: Shutterstock)

While the year’s end saw an uptick in concern about a new tech bubble, the truth is that there’s a much different, scarier bubble we need to worry about: the carbon bubble. What is the carbon bubble? Basically, it’s just another way to describe the worrisome fact that many energy companies are hoarding oil and gas, despite the rest of the world’s effort to move to a more environmentally sustainable economic system. In much the same way that governments fail to accurately measure social progress and sustainability, these companies are stuck in a dying paradigm. As The Economist puts it, “either governments are not serious about climate change or fossil fuel firms are overvalued.”

It’s simple math. In the 2010 Cancun Agreements, the international community pledged to prevent global temperatures from rising by more than 2 degrees Celsius above pre-industrial levels. But even this number is likely far too high. After all, the .8 degrees Celsius temperatures have risen thus far has already severely damaged ecosystems and economies. But given that the current trajectory would, according to IEA economist Fatih Birol, increase global temperatures by 6 degrees, 2 degrees is a politically and scientifically feasible red line. And it won’t be easy: The most recent Carbon Tracker report estimates that to have an 80% chance of holding temperatures below that threshold, no more than 900 gigatonnes of carbon dioxide (GtCO2) can be released into the atmosphere between 2013 and 2049. This range is called the international “carbon budget.”

You Might Also Like

The problem is, the total known fossil fuel reserves being held would release 2,860 GtCO2 into the atmosphere if burned. Of those reserves, listed companies account for 762 GtCO2; the rest is owned by governments. If all of the potential reserves currently being explored or developed by these companies are included, their reserves jump from 762 GtCO2 to 1,541 GtCO2. What’s more, over the last two years, the number of CO2 reserves listed on the New York Stock Exchange increased by 37%. Assuming that state-owned companies and corporations divide the carbon budget proportionally, listed companies must keep their CO2 emissions below 225 GtCO2, which means that 65 to 80 percent of their reserves cannot be burned. The inevitable conclusion? A whopping two-thirds of reserves listed on markets are potentially worthless.

Steve Waygood, head of Sustainability Research at Aviva Investors, a global asset management company, sums up the conundrum: “Valuations of the oil and gas sector still assume that they will be able to take all proven and probable reserves out of the ground and burn them. Based on credible data we cannot be allowed to do that…” So in much the same way that pre-Great Recession housing prices were based on the assumption that their values would continue to rise and homeowners would pay off their mortgages, the valuation of oil and gas companies is based on the assumption that they will be able to extract resources that must remain in the ground.

Amazingly, even given these realities, companies have allocated up to $674 billion to explore for new, unusable reserves. The Carbon Tracker report finds that, if exploration trends continue at the same rate over the next decade, “it would see up to $6.74 trillion in wasted capital developing reserves that is likely to become unburnable.” Not only will much of their reserves be unusable, but big oil and gas companies face the threat of waning demand as the international community moves toward a more sustainable economy. An HSBC report puts the problem thusly, “The main risk for the oil sector, however, is whether a low-carbon future would lead to lower fossil fuel prices.” The decline in demand will be driven partially by government initiatives and partially by the increase in alternatives (most significantly natural gas). A growing, international divestment movement will no doubt play its part, too.

The carbon bubble has big implications. It could wipe out market capitalization for behemoth firms and render oil states destitute. Companies are still inflating the bubble, and many policymakers, especially those who are subservient to big oil, are turning a blind eye. If the international community is serious about limiting warming to 2 degrees Celsius, carbon assets may face a $20 trillion write-down (the U.S. GDP was $15.7 trillion in 2012). Investors and governments should take note of the growing carbon bubble and work to pull asset prices down with regulation, disinvestment and accurate pollution pricing. Companies should adopt internal pricing mechanisms, as many have done. Companies, governments and individuals should invest in green energy, which will drive sustainable growth. The only other alternative is to continue on the current path, eating up our carbon budget and pushing global temperatures past the already dangerously high levels we are facing.

Sean McElwee's writing may be viewed at seanamcelwee.com. Follow him on Twitter at @seanmcelwee.

Lew Daly is a Director of the Sustainable Progress Initiative and a Senior Fellow at Demos

More Related Stories

Featured Slide Shows

  • Share on Twitter
  • Share on Facebook
  • 1 of 11
  • Close
  • Fullscreen
  • Thumbnails
    Martyna Blaszczyk/National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 1

    Pond de l'Archeveche - hundreds thousands of padlocks locked to a bridge by random couples, as a symbol of their eternal love. After another iconic Pont des Arts bridge was cleared of the padlocks in 2010 (as a safety measure), people started to place their love symbols on this one. Today both of the bridges are full of love locks again.

    Anders Andersson/National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 2

    A bird's view of tulip fields near Voorhout in the Netherlands, photographed with a drone in April 2015.

    Aashit Desai/National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 3

    Angalamman Festival is celebrated every year in a small town called Kaveripattinam in Tamil Nadu. Devotees, numbering in tens of thousands, converge in this town the day after Maha Shivratri to worship the deity Angalamman, meaning 'The Guardian God'. During the festival some of the worshippers paint their faces that personifies Goddess Kali. Other indulge in the ritual of piercing iron rods throughout their cheeks.

    Allan Gichigi/National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 4

    Kit Mikai is a natural rock formation about 40m high found in Western Kenya. She goes up the rocks regularly to meditate. Kit Mikai, Kenya

    Chris Ludlow/National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 5

    On a weekend trip to buffalo from Toronto we made a pit stop at Niagara Falls on the Canadian side. I took this shot with my nexus 5 smartphone. I was randomly shooting the falls themselves from different viewpoints when I happened to get a pretty lucky and interesting shot of this lone seagull on patrol over the falls. I didn't even realize I had captured it in the shot until I went back through the photos a few days later

    Jassen T./National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 6

    Incredibly beautiful and extremely remote. Koehn Lake, Mojave Desert, California. Aerial Image.

    Howard Singleton/National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 7

    Lucky timing! The oxpecker was originally sitting on hippo's head. I could see the hippo was going into a huge yawn (threat display?) and the oxpecker had to vacate it's perch. When I snapped the pic, the oxpecker appeared on the verge of being inhaled and was perfectly positioned between the massive gaping jaws of the hippo. The oxpecker also appears to be screeching in terror and back-pedaling to avoid being a snack!

    Abrar Mohsin/National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 8

    The Yetis of Nepal - The Aghoris as they are called are marked by colorful body paint and clothes

    Madeline Crowley/National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 9

    Taken from a zodiac raft on a painfully cold, rainy day

    Ian Bird/National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 10

    This wave is situated right near the CBD of Sydney. Some describe it as the most dangerous wave in Australia, due to it breaking on barnacle covered rocks only a few feet deep and only ten metres from the cliff face. If you fall off you could find yourself in a life and death situation. This photo was taken 300 feet directly above the wave from a helicopter, just as the surfer is pulling into the lip of the barrel.

  • Recent Slide Shows

Comments

Loading Comments...