When you read right wingers like Mark Walker denying climate change or trashing green investment, know that most of the world doesn’t share these opinions. In fact the investment community is slowly waking up to the fact that climate change is going to put markets at risk. It’s called the carbon bubble and the investment community is taking this threat very seriously.
The carbon bubble arises out of a calculation of how much CO2 our atmosphere can carry if we’re to have any hope of staying within the safe 2C threshold. So if you calculate the maximum greenhouse gas carrying capacity of the atmosphere, subtract how much we’ve already pumped into that atmosphere you get a remainder.
What you can do with the remainder is use it as a benchmark by which to measure the planet’s fossil fuel reserves or at least the reserves earmarked as assets by the fossil fuel industry. Then you calculate how much additional greenhouse gases will be released by burning those reserves and that’s where things get interesting. From the Financial Times: “There is increasing certainty that climate change is happening and that its impacts are going to be profound. The International Energy Agency says that the world is on course for average temperature rises of at least 4C, not the 2C targeted by policy makers, adding that if we are to stay within the 2C target, two-thirds of fossil fuel reserves must remain in the ground.” What this means is that the majority of fossil fuel reserves earmarked as assets are now unburnable and are stranded assets.
A recent HSBC study concluded that under this scenario, major energy companies such as Shell, BP and Statoll could lose up to 60 per cent of their value. The report notes that 60 per cent of Shell’s oil sand reserves have already been written off as “non-commercial” by the market. That “capital-intensive, high-cost projects, such as heavy oil and oil sands, are most at risk under our scenario.” And “that high-carbon assets will face increasing regulatory constraints and a growing risk of becoming stranded assets.”
This is the new reality for investors: The only realistic method for asset owners to manage climate risk is to hedge their portfolios — to invest in low-carbon assets so that when carbon is re-priced, either directly or indirectly, the destruction of value in their high-carbon investments is offset by an increase in value in their low-carbon investments. This is just deliciously ironic. Now you people know why our supposed ‘free market’ prime minister bent the knee to the totalitarian communist regime in China by selling Nexen. The market is about to lay the smack down on the Athabasca Tar Sands and our ‘free market’ prime minister knew the only lifeline was the state government in China, run by a bunch of child-killing totalitarians. Welcome to 2013 where irony is living the high life.
But of course the counter to this argument is that we end up doing nothing about climate change, burn those reserves and pass the 2C threshold. From the Financial Times, “The resulting rise in atmospheric concentrations could eventually mean, with a substantial probability, global warming of five degrees or more, to temperatures not seen on Earth for more than 30 million years. That would probably transform where and how people could live and lead to the migration of hundreds of millions, as well as to conflict and severe economic decline.”
Cody Young
Penticton