Topic: Carbon Bubble / Stranded Assets

originally posted Apr. 2016; updated with new links Jan. 2020

Must read:
Global warming's terrible new math. Bill McKibben, Rolling Stone. July 19, 2012.
read the whole thing, but here are a few brief excerpts:

When we think about global warming at all, the arguments tend to be ideological, theological and economic. But to grasp the seriousness of our predicament, you just need to do a little math. For the past year, an easy and powerful bit of arithmetical analysis first published by financial analysts in the U.K. has been making the rounds of environmental conferences and journals, but it hasn't yet broken through to the larger public. This analysis upends most of the conventional political thinking about climate change. And it allows us to understand our precarious – our almost-but-not-quite-finally hopeless – position with three simple numbers: 

The First Number: 2° Celsius
...
The Second Number: 565 Gigatons
...
The Third Number: 2,795 Gigatons
...
So far, as I said at the start, environmental efforts to tackle global warming have failed. The planet's emissions of carbon dioxide continue to soar, especially as developing countries emulate (and supplant) the industries of the West. Even in rich countries, small reductions in emissions offer no sign of the real break with the status quo we'd need to upend the iron logic of these three numbers
...
what all these climate numbers make painfully, usefully clear is that the planet does indeed have an enemy – one far more committed to action than governments or individuals. Given this hard math, we need to view the fossil-fuel industry in a new light. It has become a rogue industry, reckless like no other force on Earth. It is Public Enemy Number One to the survival of our planetary civilization.
...
There's only one problem: Putting a price on carbon would reduce the profitability of the fossil-fuel industry. After all, the answer to the question "How high should the price of carbon be?" is "High enough to keep those carbon reserves that would take us past two degrees safely in the ground."
..
The three numbers I've described are daunting – they may define an essentially impossible future. But at least they provide intellectual clarity about the greatest challenge humans have ever faced. We know how much we can burn, and we know who's planning to burn more.

Carbon Asset Risk: From Rhetoric to Action. Ceres. October, 2015.

Carbon Asset Risk: Discussion Framework. World Resources Institute and UNEP.

The $2 trillion stranded assets danger zone: How fossil fuel firms risk destroying investor returns. Carbon Tracker Initiative. November 2015.


Explaining the need to limit cumulative emissions of CO2. TrillionthTonne.
little online calculator allows you to adjust a couple of factors and see projected results

Estimated cumulative emissions from fossil fuel use, cement production and land-use change since industrialization began are 599.67 billion tonnes of carbon.
Cumulative emissions matter, because the total amount of carbon dioxide that can be released into the atmosphere is limited if we are to avoid dangerous climate change.

The limit depends on:
How much warming should we expect per tonne of carbon released into the atmosphere?
(choose between 5 estimates, from optimistic to cautious to pessimistic)
At what level do you want global temperatures to peak?
(choose between 2°C, 3°C or 4°C, which they [debatably] label as moderate warming, substantial warming and dangerous warming)

e.g.

If temperatures rise by 3°C per trillion tonnes of carbon released into the atmosphere, to avoid more than 2°C of warming we need to limit total cumulative emissions to below 666,666,666,666 tonnes of carbon.
Based on emission trends over the past 20 years, we expect the 666,666,666,666th tonne will be emitted on Tue, 07 Jul 2020
We would not release the 666,666,666,666th tonne if emissions were to start falling now at 13.28% per year

The carbon bubble reality check. David Hone. Climate Change Advisor For Shell. May 3, 2013.

The idea of the “carbon bubble” is based on a concept.. that there is a finite limit to the “atmospheric space” for CO2 while still ensuring that warming does not rise above 2 °C. That limit is [estimated to be] about one trillion tonnes of carbon. 

The issue of the bubble arises because the combined proven oil, gas and coal reserves currently on the books of fossil fuel companies (and governments in the case of NOCs) will produce far more than this amount of CO2 when consumed. This implies that in a world where the 2 °C limit is imposed and achieved, most of the future value generation of the companies involved will never be realized and therefore investors in them today are looking at a financial bubble that may well burst in front them.

Fossil Fuels’ Dirty Secret: Climate Action or Not, Things Look Bad. Jeremy Deaton, Nexus Media. July 3, 2018.

“There is no walking out from the energy transition.” 

Ten years ago Blockbuster CEO Jim Keyes said he wasn’t worried about digital streaming. “I’ve been frankly confused by this fascination that everybody has with Netflix,” he said. Blockbuster’s head of digital strategy echoed this sentiment, asserting the company was “strategically better positioned than almost anybody out there.” Not long after, Blockbuster went the way of the butter churn, while Netflix became a household fixture. Today, the movie streaming service is worth almost as much as Disney. 

To most people, that’s a funny story about the hubris of a technological dinosaur. Imagine, however, if Blockbuster had been a cornerstone of the U.S. economy, that millions of people had been employed in the manufacture and sales of Jurassic Park DVDs, that there were hundreds of cities dotting the South and Midwest where brick-and-mortar video rental was the only job in town. Then, the collapse of Blockbuster wouldn’t be so funny. It would be a catastrophe. 

This, experts warn, could be the future of fossil fuels. 

Wind turbines, solar panels and electric vehicles are getting cheaper and more abundant by the day, which is hurting demand for coal, oil and natural gas. As demand falls for conventional fuels, so will prices. Companies that laid claim to coal mines or oil wells, won’t be able to turn a profit by digging up that fuel. They will default on their loans, pushing banks to the brink of failure. Prices are likely to crash before 2035, costing the global economy as much as $4 trillion, according to a new study published in the journal Nature Climate Change.

The geographical distribution of fossil fuels unused when limiting global warming to 2 °C. Christophe McGlade & Paul Ekins. Nature volume 517, pages 187–190. Jan. 8, 2015.

Abstract 

Policy makers have generally agreed that the average global temperature rise caused by greenhouse gas emissions should not exceed 2 °C above the average global temperature of pre-industrial times1. It has been estimated that to have at least a 50 per cent chance of keeping warming below 2 °C throughout the twenty-first century, the cumulative carbon emissions between 2011 and 2050 need to be limited to around 1,100 gigatonnes of carbon dioxide (Gt CO2)2,3. However, the greenhouse gas emissions contained in present estimates of global fossil fuel reserves are around three times higher than this2,4, and so the unabated use of all current fossil fuel reserves is incompatible with a warming limit of 2 °C. 

Here we use a single integrated assessment model that contains estimates of the quantities, locations and nature of the world’s oil, gas and coal reserves and resources, and which is shown to be consistent with a wide variety of modelling approaches with different assumptions5, to explore the implications of this emissions limit for fossil fuel production in different regions. Our results suggest that, globally, a third of oil reserves, half of gas reserves and over 80 per cent of current coal reserves should remain unused from 2010 to 2050 in order to meet the target of 2 °C. We show that development of resources in the Arctic and any increase in unconventional oil production are incommensurate with efforts to limit average global warming to 2 °C. Our results show that policy makers’ instincts to exploit rapidly and completely their territorial fossil fuels are, in aggregate, inconsistent with their commitments to this temperature limit. Implementation of this policy commitment would also render unnecessary continued substantial expenditure on fossil fuel exploration, because any new discoveries could not lead to increased aggregate production.

Billions In Worthless Assets Plague The Oil & Gas Industry. Nick Cunningham, OilPrice.com. Jan. 8, 2020.

Investors, pension funds and companies need to get ahead of the financial risk from climate change, as many fossil fuel assets risk becoming worthless.

“We can’t have a financial sector that ignores an issue, and then all of a sudden has to deal with it,” Mark Carney, the outgoing Governor of the Bank of England, said in a recent interview with BBC. Carney is referring to the fact that current plans by fossil fuel companies, and investors who own assets in those companies, are to continue on a path that puts the world on a trajectory of 3.7-3.8 degrees of warming, “far above the 1.5 degrees that governments say they want and that people are demanding.”

Government action to limit emissions, however, would obviously disrupt that trajectory. As a result, the valuation of so many assets will remain at a certain level, until all of a sudden there is a massive repricing of companies and entire sectors. “How many of those assets that exist today are actually going to be stranded?”

Carney has lamented that the predicament amounts to a “tragedy of the horizon,” which refers to the fact that the problem of climate change is a long-term one, which makes it difficult to convince investors and companies to act. The problem is, once the real-world climate problem becomes impossible to ignore, there will be draconian policies put in place. And, in financial terms, once it becomes impossible to ignore, a sharp loss in value becomes impossible to avoid.