Report warns of ‘unburnable carbon scenario’
By Simon Lauder
Updated Sat Apr 20, 2013 11:55pm AEST
The report found most oil, gas and coal reserves would become useless if targets are kept. Photo: The report found most oil, gas and coal reserves would become useless if targets are kept. (David Hancock: AFP)
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Map: United Kingdom
British researchers are warning that effective action on climate change could trigger a new global economic crisis by devaluing the price of fossil fuels.
The report, by the London School of Economics and the non-government organisation Carbon Tracker, found 60 to 80 per cent of oil, gas and coal reserves owned by listed companies would become useless if global emission targets are kept.
It is dubbed the “unburnable carbon scenario”.
Under the 2010 Cancun agreement, governments made it a target to stop the global temperature increasing by more than two degrees.
But one report author, James Leaton, says it could be the making of a new financial crisis.
“If we carry on in that direction, then it could create a bubble around these reserves that then don’t have a market,” he said.
“There’s been similar findings from the International Energy Agency.”
Mr Leaton says the world’s top 200 fossil fuel companies are valued at $4 trillion, with a further $1.5 trillion in debt.
“We think there’s a sizeable chunk of that value at risk that the market’s not currently pricing in,” he said.
“We just need investors to start thinking about what that means for their portfolios now.”
Australia could be particularly exposed.
The head of the Investor Group on Climate Change, Nathan Fabian, said it could throw global financial markets into turmoil.
“There’s the local share market exposure but also about a third of the value of coal companies listed in London is based in Australia,” he said.
“From a broader economic perspective there is a lot of coal exposure within Australia.”
Earlier this month the Australian arm of banking giant Citigroup estimated about 14 per cent of the ASX 200 market capitalisation relates to fossil fuels.
Citigroup’s analysts conclude that while the unburnable carbon scenario is an investment risk, the more likely scenario is greater fossil fuel use and a greater degree of global warming.
Topics: environmental-policy, business-economics-and-finance, united-kingdom
First posted Sat Apr 20, 2013 6:07pm AEST