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Carbon bubble will plunge the world into another financial crisis – report

Trillions of dollars at risk as stock markets inflate value of fossil fuels that may have to remain buried forever, experts warn
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Damian Carrington

The Guardian, Friday 19 April 2013

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Carbon bubble : carbon dioxide polluting power plant : coal-fired Bruce Mansfield Power Plant
Global stock markets are betting on countries failing to adhere to legally binding carbon emission targets. Photograph: Robert Nickelsberg/Getty Images

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, according to leading economists.

“The financial crisis has shown what happens when risks accumulate unnoticed,” said Lord (Nicholas) Stern, a professor at the London School of Economics. He said the risk was “very big indeed” and that almost all investors and regulators were failing to address it.

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 a report published on Friday, at least two-thirds of these reserves will have to remain underground if the world is to meet existing internationally agreed 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. But the stock markets are betting on countries’ inaction on climate change.

The stark report is by Stern and Carbon Tracker, a thinktank supported by organisations including HSBC, Citi, Standard and Poor’s and the International Energy Agency. The Bank of England has also recognised that a collapse in the value of oil, gas and coal assets as nations tackle global warming is a potential systemic risk to the economy, with London being particularly at risk owing to its huge listings of coal.

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. “They can’t believe that and also believe that the markets are sensibly valued now.”

“They only believe environmental regulation when they see it,” said James Leaton, from Carbon Tracker and a former PwC consultant. He said short-termism in financial markets was the other major reason for the carbon bubble. “Analysts say you should ride the train until just before it goes off the cliff. Each thinks they are smart enough to get off in time, but not everyone can get out of the door at the same time. That is why you get bubbles and crashes.”

Paul Spedding, an oil and gas analyst at HSBC, said: “The scale of ‘listed’ unburnable carbon revealed in this report is astonishing. This report makes it clear that ‘business as usual’ is not a viable option for the fossil fuel industry in the long term. [The market] is assuming it will get early warning, but my worry is that things often happen suddenly in the oil and gas sector.”

HSBC warned that 40-60% of the market capitalisation of oil and gas companies was at risk from the carbon bubble, with the top 200 fossil fuel companies alone having a current value of $4tn, along with $1.5tn debt.

Lord McFall, who chaired the Commons Treasury select committee for a decade, said: “Despite its devastating scale, the banking crisis was at its heart an avoidable crisis: the threat of significant carbon writedown has the unmistakable characteristics of the same endemic problems.”

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.”

Ratings agencies have expressed concerns, with Standard and Poor’s concluding that the risk could lead to the downgrading of the credit ratings of oil companies within a few years.

Steven Oman, senior vice-president at Moody’s, said: “It behoves us as investors and as a society to know the true cost of something so that intelligent and constructive policy and investment decisions can be made. Too often the true costs are treated as unquantifiable or even ignored.”

Jens Peers, who manages €4bn (£3bn) for Mirova, part of €300bn asset managers Natixis, said: “It is shocking to see the report’s numbers, as they are worse than people realise. The risk is massive, but a lot of asset managers think they have a lot of time. I think they are wrong.” He said a key moment will come in 2015, the date when the world’s governments have pledged to strike a global deal to limit carbon emissions. But he said that fund managers need to move now. If they wait till 2015, “it will be too late for them to take action.”

Pension funds are also concerned. “Every pension fund manager needs to ask themselves have we incorporated climate change and carbon risk into our investment strategy? If the answer is no, they need to start to now,” said Howard Pearce, head of pension fund management at the Environment Agency, which holds £2bn in assets.

Stern and Leaton both point to China as evidence that carbon cuts are likely to be delivered. China’s leaders have said its coal use will peak in the next five years, said Leaton, but this has not been priced in. “I don’t know why the market does not believe China,” he said. “When it says it is going to do something, it usually does.” He said the US and Australia were banking on selling coal to China but that this “doesn’t add up”.

Jeremy Grantham, a billionaire fund manager who oversees $106bn of assets, said his company was on the verge of pulling out of all coal and unconventional fossil fuels, such as oil from tar sands. “The probability of them running into trouble is too high for me to take that risk as an investor.” He said: “If we mean to burn all the coal and any appreciable percentage of the tar sands, or other unconventional oil and gas then we’re cooked. [There are] terrible consequences that we will lay at the door of our grandchildren.”

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A coal-fired power station in Gelsenkirchen, Germany dwarfs a wind turbine in the foreground.

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Despite the clean technology of the past decade, we continue to extract and burn fossil fuels more than ever before

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Carbon bubble: Bank of England’s opportunity to tackle market failure

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19 April 2013, 5.55am AEST
Grattan on Friday: Carbon budget blow from Europe

So much for Julia Gillard’s hope that the carbon tax debate would fade once the scheme was bedded down in the middle of last year. The issue has erupted again, hitting the government where it hurts at the worst possible time. This week’s decision by the European parliament not to prop up Europe’s carbon…

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Michelle Grattan

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Michelle Grattan does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

The University of Canberra Provides funding as a Member of The Conversation.
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Gzh3h79h-1366267560Climate Minister Greg Combet has played down the European decision. AAP/Alan Porritt .

So much for Julia Gillard’s hope that the carbon tax debate would fade once the scheme was bedded down in the middle of last year. The issue has erupted again, hitting the government where it hurts at the worst possible time.

This week’s decision by the European parliament not to prop up Europe’s carbon price, which led to it falling 40% to a little over $3 a tonne, is a serious blow on two fronts.

It puts a multi-billion hole at the back end (years 2015-16 and 2016-17) of a May 14 budget that is already under major stress. The anticipated revenue would be significantly less, but the spending would still be high.

And it plays into Tony Abbott’s hands by highlighting that the Australian scheme is at present out of kilter internationally, which strengthens the voices in business complaining about competitive disadvantage.

The Australian carbon price, now $23 a tonne, is set to rise to $24.15 on July 1. It is not until 2015 that Australia would move to a floating price, when it would also be linked to the EU trading scheme.

The budget numbers are now being redone in light of the EU action. Beyond acknowledging that, Climate Minister Greg Combet has played down the European decision.

“This was just one proposal of a number that they are considering to support their emissions trading scheme, so it will now be considered further by the [EU] parliament’s environment committee in Europe”, Combet said on Wednesday, seeming to suggest it might be changed at some point.

The decision has set off a chorus from business with the Australian Industry Group calling for an immediate move to a floating price.

That’s the last thing the government would want to do from a budget point of view. The fiscal impact doesn’t come until 2015-16. If the market was brought forward so would the budget pain.

Ross Garnaut, who prepared the initial work on the carbon scheme for the Government, seeks to put this week’s events into perspective.

“There is a lot of water to go under the bridge before the European emissions price is determined for 2015 and later years. A tightening of targets or restoration of economic growth would change the price outlook.

“In the meantime, the low European price has no effect on the Australian budget or carbon scheme until 2015. Keeping the current arrangements in place will see the Australian price rise with increased international effort after 2015.

“There would be trivial competitiveness gains once free permits to emitters are taken into account, and large budget losses, from moving earlier to link with Europe.”

On the long term view, 2015 is in the distance, but it’s just around the corner for harassed Labor ministers and their officials.

Speculation puts the hole in the budget at perhaps a total of $10 billion for the two years, starting from mid 2015.

But what will appear in the budget will depend on the official estimate of the price in those years and the EU situation injects more uncertainty.

The climate change optimists hope for a recovery; those pessimistic about the European economy will predict the opposite.

Whatever estimate Treasury puts in its figures will be open to debate in the budget where the Coalition will be hotly contesting any numbers that it can.

If the government was hoping to show some pathway back to surplus in the budget numbers this has been made harder.

In trying to juggle its big spending programs, the government is loading a lot into the latter years of the forward estimates – a new assault on revenue then makes this more dicey.

If the floating carbon price in 2015 was anywhere near the current EU level, there would be significant unintended results for the compensation side of the package that the government put in place last year.

Low and middle income earners and welfare recipients would get a windfall, because the compensation has been set on the assumption of a much higher price.

It is perhaps not surprising that the EU, faced with Europe’s immense problems, has opted for short term economics over longer term environmental issues.

In Australia, despite a much more benign economic situation, even mildly harder times have worked against support for tackling climate change.

What was such a strong issue for Kevin Rudd in 2007 will help Tony Abbott in 2013, regardless of the criticisms of his “direct action” alternative.

Last year’s Lowy poll found that for the first time Australians favouring an intermediate approach to the problem of global warming outnumbered those supporting the most aggressive form of action.

One third (36%) backed taking steps now “even if this involves significant costs” – compared with two thirds (68%) in 2006.

Last year 45 per cent backed the option which said that “the problem of global warming should be addressed, but its effects will be gradual, so we can deal with the problem gradually by taking steps that are low in cost”.

The EU decision may help Abbott in another way, if he is elected. Opposition climate action spokesman Greg Hunt said yesterday a Coalition government would expect and urge the ALP “to accept the clear mandate of a new government” and not block the legislation to repeal the scheme.

A very low European price could make it more difficult for a Labor opposition to stand against repeal of a scheme that looked out of sync.

On the other hand, the complex task of unwinding the carbon model could turn into a nightmare for a first term Liberal government.

Hydrogen Sulfide Greatly Enhances Plant Growth: Key Ingredient in Mass Extinctions Could Boost Food, Biofuel Production

Apr. 17, 2013 — Hydrogen sulfide, the pungent stuff often referred to as sewer gas, is a deadly substance implicated in several mass extinctions, including one at the end of the Permian period 251 million years ago that wiped out more than three-quarters of all species on Earth.

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But in low doses, hydrogen sulfide could greatly enhance plant growth, leading to a sharp increase in global food supplies and plentiful stock for biofuel production, new University of Washington research shows.

“We found some very interesting things, including that at the very lowest levels plant health improves. But that’s not what we were looking for,” said Frederick Dooley, a UW doctoral student in biology who led the research.

Dooley started off to examine the toxic effects of hydrogen sulfide on plants but mistakenly used only one-tenth the amount of the toxin he had intended. The results were so unbelievable that he repeated the experiment. Still unconvinced, he repeated it again — and again, and again. In fact, the results have been replicated so often that they are now “a near certainty,” he said.

“Everything else that’s ever been done on plants was looking at hydrogen sulfide in high concentrations,” he said.

The research is published online April 17 in PLOS ONE, a Public Library of Science journal.

At high concentrations — levels of 30 to 100 parts per million in water — hydrogen sulfide can be lethal to humans. At one part per million it emits a telltale rotten-egg smell. Dooley used a concentration of 1 part per billion or less to water seeds of peas, beans and wheat on a weekly basis. Treating the seeds less often reduced the effect, and watering more often typically killed them.

With wheat, all the seeds germinated in one to two days instead of four or five, and with peas and beans the typical 40 percent rate of germination rose to 60 to 70 percent.

“They germinate faster and they produce roots and leaves faster. Basically what we’ve done is accelerate the entire plant process,” he said.

Crop yields nearly doubled, said Peter Ward, Dooley’s doctoral adviser, a UW professor of biology and of Earth and space sciences and an authority on Earth’s mass extinctions.

Hydrogen sulfide, probably produced when sulfates in the oceans were decomposed by sulfur bacteria, is believed to have played a significant role in several extinction events, in particular the “Great Dying” at the end of the Permian period. Ward suggests that the rapid plant growth could be the result of genetic signaling passed down in the wake of mass extinctions.

At high concentrations, hydrogen sulfide killed small plants very easily while larger plants had a better chance at survival, he said, so it is likely that plants carry a defense mechanism that spurs their growth when they sense hydrogen sulfide.

“Mass extinctions kill a lot of stuff, but here’s a legacy that promotes life,” Ward said.

Dooley recently has applied hydrogen sulfide treatment to corn, carrots and soybeans with results that appear to be similar to earlier tests. But it is likely to be some time before he, and the general public, are comfortable with the level of testing to make sure there are no unforeseen consequences of treating food crops with hydrogen sulfide.

The most significant near-term promise, he believes, is in growing algae and other stock for biofuels. Plant lipids are the key to biofuel production, and preliminary tests show that the composition of lipids in hydrogen sulfide-treated plants is the same as in untreated plants, he said.

When plants grow to larger-than-normal size, they typically do not produce more cells but rather elongate their existing cells, Dooley said. However, in the treatment with hydrogen sulfide, he found that the cells actually got smaller and there were vastly more of them. That means the plants contain significantly more biomass for fuel production, he said.

“If you look at a slide of the cells under a microscope, anyone can understand it. It is that big of a difference,” he said.

Ward and Suven Nair, a UW biology undergraduate, are coauthors of the PLOS ONE paper. The work was funded by the UW Astrobiology Program.

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Environmental Policies Matter for Growing Megacities

Apr. 3, 2013 — A new study shows clean-air regulations have dramatically reduced acid rain in the United States, Europe, Japan and South Korea over the past 30 years, but the opposite is true in fast-growing East Asian megacities, possibly due to lax antipollution rules or lack of enforcement.

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The U.S. Clean Air Act began requiring regulatory controls for vehicle emissions in the 1970s, and 1990 amendments addressed issues including acid rain. Similar steps in the European Union, Japan and South Korea over the past three decades have reduced nitrate and sulfate in rain — components contributing to acid rain, said Suresh Rao, Lee A. Reith Distinguished Professor of Civil Engineering and Agronomy at Purdue University.

The effects of acid rain can propagate through aquatic ecosystems such as lakes, rivers and wetlands and terrestrial ecosystems including forests and soils, negatively impacting ecological health.

Researchers have now used publicly accessible data, collected weekly or monthly at numerous monitoring sites during the period from 1980-2010, to track “wet deposition” of nitrate and sulfate near several U.S. and East Asian cities. The pollutants, products of fossil fuel combustion, are emitted by cars, trucks and buses. Pollutants rise up into the atmosphere and accumulate until being washed down as wet deposition by rain or snow or as “dry deposition” between rain events.

Fast-growing cities in East Asia that lack regulations or enforcement show a dramatic rise in acid rain, according to the new study completed by Purdue researchers.

“Our analysis of wet deposition (acid rain) data provides compelling evidence that clean-air policies and enforcement of environmental regulations are profoundly important,” Rao said.

The findings of the study are detailed in a research paper published in the journal Atmospheric Environment. The article is accessible online and will appear in the May issue. It was co-authored by civil engineering postdoctoral researchers Jeryang Park and Heather Gall and by Rao and Dev Niyogi, Indiana state climatologist and an associate professor in the Purdue Department of Agronomy and the Department of Earth, Atmospheric and Planetary Sciences.

Severe problems with air pollution also are evident in particulate matter (PM) concentrations contributing to smog. In a recent study published in the Lancet journal, PM pollution was the fourth-leading risk factor for death in China and may be linked to 1.2 million premature deaths in 2010. Similar problems exist in cities in India, where air pollution is estimated to contribute to about 600,000 premature deaths, according to the Lancet study.

“We are in an urban era with more people staying in cities than ever before in the history of mankind,” Niyogi said. “The impact cities can have on the environment we find is a function of growing population and affluence, and more importantly how regulations are shaped and implemented. As a result of regulations and enforcement, what goes up as emissions is now much smaller, and that means what comes down as acid rain also is much smaller. Every car now has a catalytic converter that reduces tailpipe emissions. So, adoption of highly efficient control technologies, as uniformly as we do across the United States, has resulted in lower emissions. In essence, we’ve solved the acid rain problem through good environmental regulations and wide adoption of mitigation technologies.”

The Purdue study findings show that even though rainfall patterns vary widely from one city to another, the annual average rate of nitrate and sulfate found in wet deposition is essentially the same across the United States.

“That was a surprise,” Rao said. “Because rainfall patterns vary so much from one location to another, you would think wet deposition also would vary. Yet, it’s the same across the United States, and that’s because we have regulations and enforcement and engineering solutions to control emissions.”

However, the same homogeneity is not seen in several large fast-growing cities in East Asia, where high wet deposition rates match high, unregulated emissions.

“This is the same thing that transpired in the United States in the period leading up to the 1970s,” Rao said. “We had rapid urban growth, rising emissions and rising wet deposition, which is analogous to what’s happening now in places like Beijing and New Delhi.”

For example, the concentration of nitrate and sulfate in rainwater in the Chinese city of Xi’an is 10 times greater than in New York City.

The reduction in wet deposition in U.S. cities is especially significant considering that the time period also was marked by dramatic growth in gross domestic product, urban population and the number of vehicles.

“This is encouraging,” Gall said. “When mitigation strategies are widely adapted, it is possible for cost-effective engineering solutions to protect the environment while simultaneously allowing people to maintain the same quality of life.”

The researchers have developed a model that can be used to simulate and predict how wet deposition rates vary across megacities located in diverse climatic regions, such as arid or humid.

“Given certain emissions and rainfall patterns, we can now project how wet deposition rates would increase initially and then decrease when and if regulations are in place,” Rao said. “Additionally, the model can be used to examine wet deposition rates under climate-change scenarios.”

The study findings also have implications for variations in wet deposition rates under shifting weather resulting from climate-change scenarios, as well as rapid urbanization in emerging economies.

Although annual wet deposition patterns are influenced by variability in rainfall amounts both within a year and from year to year, the effects are much greater when pollutant-emission regulation is weak. For example, even though Xi’an, China, is predicted to become drier in the future due to climate changes, the data and modeling analysis revealed that long-term climate oscillations — like El Nino and La Nina cycles — could induce dramatic increases in the concentration of pollutants in rainfall, ultimately leading to increased wet deposition of pollutants.

“This implies that when regulations are inadequately implemented, climate change could result in much larger impacts on the environment,” said Park, the article’s lead author.

Future work will shift focus to sub-Saharan Africa, where major growth is anticipated later in the century.

“The majority of the newest megacities will be in Asia and sub-Saharan Africa, and that’s where the biggest economic development will be,” Park said.

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Researchers find new materials to capture methane

English.news.cn 2013-04-17 13:57:05

WASHINGTON, April 16 (Xinhua) — U.S. researchers have discovered new materials that can capture and concentrate methane, the second highest concentration greenhouse gas emitted into the atmosphere.

Unlike carbon dioxide, the largest emitted greenhouse gas, which can be captured both physically and chemically in a variety of solvents and porous solids, methane is completely non-polar and interacts very weakly with most materials.

Researchers at the Lawrence Livermore National Laboratory and University of California, Berkeley, performed systematic computer simulation studies on the effectiveness of methane capture using two different materials: liquid solvents and nanoporous zeolites, porous materials commonly used as commercial adsorbents.

While the liquid solvents were not effective for methane capture, a handful of zeolites had sufficient methane sorption to be technologically promising.

The researchers tested some 100,000 zeolites during this study, which appears in the journal Nature Communications on Tuesday.

Zeolites are unique structures that can be used for many different types of gas separations and storage applications because of their diverse topology from various networks of the framework atoms.

In the team’s simulations, one specific zeolite, dubbed SBN, captured enough medium source methane to turn it to high purity methane, which in turn could be used to generate efficient electricity.

“We used free-energy profiling and geometric analysis in these candidate zeolites to understand how the distribution and connectivity of pore structures and binding sites can lead to enhanced sorption of methane while being competitive with carbon dioxide sorption at the same time,” said Amitesh Maiti, who works in the U.S. Lawrence Livermore National Laboratory and is one of the authors of the paper.

Other zeolites, named ZON and FER, were able to concentrate dilute methane streams into moderate concentrations that could be used to treat coal-mine ventilation air.

Marine Energy Technology Leader Minesto Named as One of Sweden’s Hottest Technology Companies

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Nordic marine energy technology leader Minesto, with a proven technology to cost efficiently produce electricity from low velocity tidal and ocean currents, has been included in the prestigious annual list of the hottest Swedish young technology companies.

The list of 33 promising Swedish technology companies, “the 33 list”, is compiled by the two Swedish technology and business magazines Ny Teknik and Affärsvärlden with a view of finding “the next Ericson or SKF”. A thorough research process has narrowed 284 nominees down to the final chosen 33, which were announced at a gala in Stockholm, Sweden last night.

One of the main criteria for entering the list is that the company offers a step change technology for its industry. Minesto does this through unlocking the potential to cost efficient electricity production from low velocity tidal and ocean currents using its innovative marine power plant, Deep Green. Most actors in the industry develop power plants suitable for high velocity currents, hence these are not cost efficient in the low velocity currents that Deep Green operates in. Low velocity currents are estimated to represent at least half of the tidal and ocean current energy potential on the global arena.

Find the entire list here (in Swedish). The selected companies all fulfil criteria that include having developed a unique and innovative product or service, with a great international potential to offer a step change technology for its industry. The selected 33 companies are equal winners, and are presented in no particular order.

“We are happy to be included in this prestigious list of the most promising Swedish technology companies,” said Anders Jansson, CEO, Minesto. “It clearly shows that we are on the right track in the steady development and commercialisation of our revolutionary marine energy technology.”

Sweeping underwater kite
Deep Green resembles a sweeping underwater kite, comprised of a wing and a turbine which is secured to the seabed with a tether and moves with great speed in an 8-shaped path in the tidal or ocean current.

Compared to other traditional and renewable energy sources, tidal and ocean current energy is considerably more predictable and reliable and causes no visual and positive environmental impact. Marine energy from the world’s ocean has huge potential. Deep Green, with its low weight and ability to operate in low velocity currents, has several advantages compared to other tidal and ocean current power plants: the catchment area is much larger, and service and maintenance is more cost efficient, resulting in low electricity production costs, comparable with traditional energy sources.