Finance Community Waking Up to the Carbon Bubble

December 3, 2014

Above, Bill Mckibben accepts the Swedish Parliament’s Right Livelihood Award, known as the “alternative Nobel” prize.
He describes signs of a rising global movement on climate, and the fraying edges of the Fossil Fuel front.


The Bank of England is to conduct an enquiry into the risk of fossil fuel companies causing a major economic crash if future climate change rules render their coal, oil and gas assets worthless.

The concept of a “carbon bubble” has gained rapid recognition since 2013, and is being taken increasingly seriously by some major financial companies including Citi bank, HSBC and Moody’s, but the Bank’s enquiry is the most significant endorsement yet from a regulator.

The concern is that if the world’s government’s meet their agreed target of limiting global warming to 2C by cutting carbon emissions, then about two-thirds of proven coal, oil and gas reserves cannot be burned. With fossil fuel companies being among the largest in the world, sharp losses in their value could prompt a new economic crisis.

Mark Carney, the bank’s governor, revealed the enquiry in a letter to the House of Commons environment audit committee (EAC), which is conducting its own enquiry. He said there had been an initial discussion within the bank on “stranded” fossil fuel assets.

“In light of these discussions, we will be deepening and widening our enquiry into the topic,” he said, involving the financial policy committee which is tasked with identifying systemic economic risks. Carney had raised the issue at a World Bank seminar in October.

In October, the Guardian had reported that:

The governor of the Bank of England has reiterated his warning that fossil fuel companies cannot burn all of their reserves if the world is to avoid catastrophic climate change, and called for investors to consider the long-term impacts of their decisions.

According to reports, Carney told a World Bank seminar on integrated reporting on Friday that the “vast majority of reserves are unburnable” if global temperature rises are to be limited to below 2C.

Carney is the latest high profile figure to lend his weight to the “carbon bubble” theory, which warns that fossil fuel assets, such as coal, oil and gas, could be significantly devalued if a global deal to tackle climate change is reached.

Lord Nicholas Stern of the London School of Economics had this to say a year ago on the risks associated with fossil fuel investment.

CBC – Canada:

Major financial firms such as Citibank, HSBC and Moody’s have also begun to study the impact of a carbon bubble and stranded assets. Thinktank Carbon Tracker helps financial companies and fossil fuel companies get the risk in hand.

“Fossil fuel companies should be disclosing how many carbon emissions are locked up in their reserves,” Carbon Tracker CEO Anthoy Hobley said. “At the moment there is no consistency in reporting so it’s difficult for investors to make informed decisions.”

ExxonMobil agreed earlier this year to publish a “Carbon Asset Risk” report describing how it assesses its financial risks from climate change, but its report downplayed the risk of a carbon bubble saying it doesn’t believe its assets will be stranded. Shell also has denied it is a carbon risk.

In today’s environment of falling oil prices, many companies are already hesitating to invest in new oil and gas projects, especially if they are unconventional developments which can be more expensive.

And any progress toward a climate change agreement in 2015 could also discourage investment.

At the same time, a giant European corporation is splitting off fossil fuels to concentrate on renewable energy.


EON SE, Germany’s largest utility, will break itself up, spinning off fossil-fuel power plants into a separate company to focus on renewable energy.

The plan is the most radical response yet to Germany’s unprecedented switch to wind and solar power. The so-called energy shift has forced EON and its peers to close nuclear reactors and undermined power prices, decimating the profitability of traditional utilities.

Chief Executive Officer Johannes Teyssen said other utilities would have to consider similar moves as the industry adjusted to the massive changes in the way electricity is generated and consumed. The company expects to complete the split in 2016.

“We are the first to resolutely draw the conclusion from the change of the energy world,” Teyssen told reporters in Dusseldorf today. “We’re convinced that energy companies will have to focus on one of the two energy worlds if they want to be successful.”

Bloomberg again, with an analysis:

EON SE (EOAN)’s plan to spin off its fossil-fuel plants marks a watershed moment in Germany’s renewables effort that will likely bolster the country’s already leading position in clean energy.

EON’s announcement is the culmination of a push to wind, solar and other alternative energy forms that the German government began 14 years ago with subsidies to reduce the country’s reliance on fossil fuels for power production. That plan gained added momentum in 2011 with a decision to close the country’s nuclear reactors following the Fukushima accident.

“There’s a new world becoming reality that’s driven by customers,” EON Chief Executive Officer Johannes Teyssen said today in Berlin of the plan to split the utility.

Vattenfall AB, owned by the Swedish state, wants to get rid of its German coal operations to focus on renewables, while ENBW Energie Baden-Wuerttemberg AG (EBK) last year doubled its asset sales goal to 3 billion euros to free up cash to invest in clean energy. RWE, Europe’s biggest corporate emitter of greenhouse gases, said yesterday it didn’t plan to follow EON’s lead. RWE last year generated more than half of its power in Germany with lignite, the dirtiest fossil fuel.

“Spinning off coal, gas and oil from the core business is a smart strategy for a future-oriented company,” said Patrick Graichen, head of Agora Energiewende. “I’m sure additional utilities will follow suit — not just in Germany, but worldwide.”

4 Responses to “Finance Community Waking Up to the Carbon Bubble”

  1. Gingerbaker Says:

    “Thinktank Carbon Tracker helps financial companies and fossil fuel companies get the risk in hand.”

    Whatever losses may or may not accrue to fossil fuel accounts will be very small, in the long run, when measured against the positive effects of trillions upon trillions of dollars of newfound disposable income in the hands of consumers who no longer have to pay $1.5 trillion per year to fossil fuel companies for the privilege of polluting the planet into oblivion.

    That is, at 2011 rates, over $3000.00 per person for every household in the U.S. every single year. They are going to spend that dough somewhere, or invest it somewhere. And, if we are smart, they will invest it in Federal renewable energy infrastructure, so they can enjoy watching the free or nearly free electricity pour into their homes and businesses. A brand spanking new 100% renewable energy system for the U.S. would only take about seven years of redirected spending to recoup infrastructure costs.

    Meanwhile, fossil fuels are still very precious assets with a thousand profitable uses – we just won’t be burning them for fuel anymore.

  2. […] ClimateCrocks: Above, Bill Mckibben accepts the Swedish Parliament’s Right Livelihood Award, known as the “alternative Nobel” prize. He describes signs of a rising global movement on climate, and the fraying edges of the Fossil Fuel front. […]

  3. Check it out.

    “Climate advocates are organizing the first-ever Global Divestment Day on February 13-14, 2015, organizing thousands of people on five continents to take collective action by demanding their respective institutions stop investing in dirty energy for economic and environmental reasons.”

  4. […] up against them, and possibly most important, the growing impact of the Divestment movement as investors wake up to their exposure to a “carbon bubble” – that they are lining up and calling for […]

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