How the financial world began to turn against fossil fuels


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A low-key celebration took place in London last month. It marked the 10th anniversary of the Carbon Bubble report, published by the Carbon Tracker Initiative think tank, which has become one of the most influential arguments against the burning of fossil fuels.

The starting point for the report was further groundbreaking research. Malte Meinshausen and other scientists had published an article in Nature a few years earlier, which estimated how much heat-trapping carbon dioxide humans could release before the world warmed by 2 degrees Celsius above industrial levels. . They found that to have a 75% chance of exceeding the warming limit, no more than 1,000 billion tonnes of carbon could be burned from 2000 to 2050.

Compare that to the amount of untapped fossil fuels estimated in 2011 and Carbon Tracker concluded that only a fifth of the 2.3 trillion tonnes of hydrocarbons could be extracted and used. The rest should be left in the ground. It was a completely counter-intuitive proposition for the corporate world. All that coal, oil and gas contributed to the value of companies and assets that were in portfolios from New York to Hong Kong. Even if the target were only partially achieved, these holdings would collapse.

“This leaves investors exposed to the risk of unburnable carbon,” the report said. These would be “blocked assets”.

Climate change is often described as a ‘bad problem’. No one in particular has any incentive to tackle it because the benefits will be appreciated by everyone. But the Carbon Bubble report introduced a whole new way to approach the problem. Its authors pointed out another truth: the fossil fuel trade had to disappear if the planet were to survive, and to be the last to come out would be a colossal financial mistake.

This risk has grown in recent years. As the exit from fossil fuels – also driven by technology, policy and consumer pressure – accelerated, many investors began to reconsider the wisdom of owning such assets. It was not about being a “climate believer” or wanting to be ethical.

Unlike other industries that were ultimately doomed, some real numbers can be put around the outlook for the fossil fuel sector. It is possible to determine which carbon reserves could be the most or the least “consumable” in the meager carbon budget remaining. Subsequent work has broken down these total reserves according to parameters such as geography and cost of production.

Reading the Carbon Bubble Report a decade later is bittersweet. Much of what he warned has already happened. Many companies listed as the most loaded with too many carbon stores have since adopted policies that they would have found absurd ten years ago. Others have failed. BHP Billiton has moved too slowly to get rid of its thermal coal assets and is still stuck with one today; AngloAmerican had to pay to part with its South African coal mines. Even Exxon had to write down the value of its reserves, mainly due to its exuberant purchase of shale gas assets a decade earlier.

Limits to the theory also appeared. Fossil fuel assets can cost private investors a lot of money without necessarily stopping production. Many are protected by laws, institutions and special interests. Companies have used an archaic international treaty called the Energy Charter Treaty to sue governments for some $ 18 billion over emissions policies, according to an analysis by Global Justice Now.

A study last year by the International Institute for Environment and Development found that out of 257 foreign-owned coal-fired power plants around the world, at least three-quarters enjoy some sort of ‘regulation’ protection. investor-state disputes, ”which allows homeowners to sue governments that might try to shut them down sooner. Then there are national and state rules regarding licenses and royalties for extractive industries, which often require tenants to keep producing.

An even bigger hurdle is simply that for many governments fossil fuels are a valuable source of export revenue, or that their domestic industries are politically powerful holders that the state will protect. Even coal, which can be inexpensively replaced by new renewables in many parts of the world, is still supported by producing countries like Australia, China, Indonesia and India.

Mark Campanale, co-founder of Carbon Tracker, pleads for a solution to this problem. It’s called the Fossil Fuel Non-Proliferation Treaty and tries to erode state support for fossil fuels. Modeled on the nuclear non-proliferation treaty, Campanale says the initiative addresses the “classic dilemma” faced by many governments.

“If you start by giving up your production rights, bad actors will step in and take your market share,” he said. “So you need everyone to come together and revoke the licenses and the production rights. “

The Nuclear Non-Proliferation Treaty took shape after years of popular support and advocacy from civil society. A basic proposition of the Campanale initiative borrows one element: a standardized and freely accessible register of all fossil fuel reserves and projects in the world that can be analyzed in terms of production cost and emissions.

Importantly, the database would also link projects to governments, which could strengthen international climate commitments. “We know that some at the top of the pile will be the major signatories to the Paris Agreement,” Campanale said. “Signatories have yet to observe that emission reductions mean less use of fossil fuels, otherwise why keep handing out new licenses?” “

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