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The world could be heading for another major economic shock as stock markets inflate an investment bubble in fossil fuels to the tune of trillions of dollars, according to new research.
In its second seminal report, Unburnable Carbon 2013: Wasted Capital and Stranded Assets, the Carbon Tracker Initiative found that firms invested $674 billion last year alone in projects trying to find and develop new fossil fuels reserves.
To stick to current agreed global limits on emissions—and keep warming below 2˚C—the International Energy Agency warns that two thirds of the known global fossil fuel reserves must stay in the ground. This means 60-80 percent of the fossil fuels listed by companies are effectively ‘unburnable’ and therefore worthless, which could lead to massive market losses.
The authors of the latest report say that even if these rules were relaxed to allow emissions to a level which would see a 3˚C temperature rise, there would still have to be limits on fossil fuels. And while carbon capture and storage technology, which buries emissions underground, can play a role in the future, Carbon Tracker warns is unlikely to make any impact until the second half of the 21st century.
This highlights a fundamental contradiction–on the one hand vast amounts of fossil fuels must remain in the ground and on the other huge amounts of money is being poured into finding new reserves.
Commenting on the report, Lord Nicholas Stern, former chief economist of the World Bank said the business models of fossil fuel companies continue to be based on the extreme assumption that there will be no limits to greenhouse gas emissions. He warned that $6 trillion could be pumped into the ‘carbon bubble’ over the next decade.
Lord Stern said:
Smart investors can already see that most fossil fuel reserves are essentially unburnable because of the need to reduce emissions in line with the global agreement by governments to avoid global warming of more than 2°C. They can see that investing in companies that rely solely or heavily on constantly replenishing reserves of fossil fuels is becoming a very risky decision.
But I hope this report will mean that regulators also take note, because much of the embedded risk from these potentially toxic carbon assets is not openly recognized through current reporting requirements.
The researchers are calling on the financial industry to improve the transparency and regulation around risky fossil fuel investments.
Along with banking giants HSBC they want to ensure that the potentially toxic assets underpinning global markets are plain for all to see as it could have major implications for global trading centers such as New York and London.
Fund managers speaking out in support of these recommendations have urged industry-wide action sooner rather than later in order to prevent shocks like the sub-prime mortgage crash that triggered the current global recession. The average pension fund portfolio already sinks 55 percent of its investments into risky carbon assets according to recent figures.
According to the report:
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 $4 trillion in 2012 and servicing $1.27 trillion in outstanding corporate debt over the same period. We need to challenge these methodologies:
- To avoid systemic risks such as climate change, investors will have to demand to go beyond the traditional definition of risk as underperforming the benchmark
- The rebalancing and redistribution of funds if required to protect shareholders’ interest and prevent wasted capital, the scale of which can be seen below. Greater understanding of the uncertainty and risk around fossil fuels can help the redistribution of these funds towards alternatives more attractive.
Financial institutions use pension payments or shareholder money to make investments and maximize returns–but they also have a duty to act in their members’ best interests. However, individuals have the power to trigger a positive shift.
With the carbon bubble looming, investing in fossil fuel projects could hurt members’ savings, members can demand that financial institutions report and reduce their exposure to climate change risk.
ShareAction has launched a platform to coincide with the launch of the latest report, allowing people to research their pension funds and send letters of concern to the financial institutions using their money to fund dangerous fossil fuel projects.
This study also makes a number of recommendations for action by governments, financial intermediaries, institutional investors and citizens to manage this risk:
Visit EcoWatch’s CLIMATE CHANGE and ENERGY pages for more related news on this topic.
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Here are three new films to watch this Earth Week that will transport you from pole to pole and introduce you to the scientists and activists working to save our shared home.
1. The Year Earth Changed
Where to Watch: Apple TV+
When to Watch: From April 16
The coronavirus pandemic has brought home the stakes of humanity's impact on the environment. But the lockdowns also proved how quickly nature can recover when humans give it the space. Birds sang in empty cities, whales surfaced in Glacier Bay and capybara roamed the South American suburbs.
The Year Earth Changed captures this unique year with footage from more than 30 lockdowned cities between May 2020 to January 2021. Narrated by renowned wildlife broadcaster David Attenborough, the film explores what positive lessons we can take from the experience of a quieter, less trafficked world.
"What the film shows is that the natural world can bounce back remarkably quickly when we take a step back and reduce our impact as we did during lockdown," executive producer Alice Keens-Soper of BBC Studios Natural History Unit told EcoWatch. "If we are willing to make even small changes to our habits, the natural world can flourish. We need to learn how to co-exist with nature and understand that we are not separate from it- for example if we closed some of our beaches at for a few weeks during the turtle breeding we see that it can make a huge difference to their success. There are many ways that we can adapt our behavior to allow the natural world to thrive as it did in lockdown."
2. After Antarctica
Where to Watch: San Francisco International Film Festival
When to Watch: 12 a.m. PST April 9 to 11:59 p.m. April 18
In 1989, Will Steger led an international team of six scientists and explorers to be the first humans to cross Antarctica by dogsled. Steger and his team weren't just in it for the adventure. They also wanted to draw attention to the ways in which the climate crisis was already transforming the icy continent and to rally support for the renewal of the Antarctic Treaty, which would keep the continent safe from extractive industries.
In After Antarctica, award-winning filmmaker Tasha Van Zandt follows Steger 30 years later as he travels the Arctic this time, reflecting on his original journey and once again bringing awareness to changes in a polar landscape. The film intersperses this contemporary journey with footage from the original expedition, some of which has never been seen before.
"Will's life journey as an explorer and climate activist has led him not only to see more of the polar world than anyone else alive today, but to being an eyewitness to the changes occurring across both poles," Van Zandt told EcoWatch. "But now, these changes are happening in all of our own backyards and we have all become eyewitnesses. Through my journey with Will, I have learned that although we cannot always control change, we can change our response. I feel strongly that this is a message that resonates when we look at the current state of the world, as we each have power and control over how we choose to respond to hardships, and we all have the power to unite with others through collective action around a common goal."
After Antarctica is available to stream once you purchase a ticket to the San Francisco International Film Festival. If you miss it this weekend, it will screen again at the Minneapolis St. Paul International Film Festival from May 13 to May 23.
Tasha Van Zandt
3. The Race to Save the World
Where to Watch: Virtual Cinema
When to Watch: From Earth Day, April 22
While many films about the climate crisis seek to raise awareness about the extent of the problem, The Race to Save the World focuses on the people who are trying to stop it. The film tells the story of climate activists ranging from 15-year-old Aji to 72-year-old Miriam who are working to create a sustainable future. It follows them from the streets to the courtroom to their homes, and explores the impact of their advocacy on their personal lives and relationships.
Emmy award-winning documentary filmmaker Joe Gantz told EcoWatch that he wanted to make a film about climate change, but did not want to depress viewers with overwhelming statistics. Instead, he chose to inspire them by sharing the stories of people trying to make a difference.
"Unless millions of people take to the streets and make their voices heard for a livable future, the politicians are not going to get on board to help make the changes needed for a sustainable future," Gantz told Ecowatch. "I think that The Race To Save The World will energize and inspire people to take action so that future generations, as well as the plants, animals and ecosystems, can survive and thrive on this planet."
Check back with EcoWatch on the morning of Earth Day for a special preview of this inspiring film!