Notions of “Unburnable Carbon” and “Carbon Bubble” Go Mainstream

A little update on my last post. Shortly after analysis by HSBC concluded that meeting the 2°C target could strip as much as 60% of the market value off fossil fuel companies, another new analysis by Standard & Poor’s and the Carbon Tracker Initiative warns that oil companies could face credit rating downgrades due to emission reduction policies. As noted by Michael Wilkins, head of environmental finance at Standard & Poor’s,

“Financial models that only rely on past performance and creditworthiness are an insufficient guide for investors. By analysing the potential impact of future carbon constraints driven by global climate change policies, our study shows a deterioration in the financial risk profiles for smaller oil companies that could lead to negative outlooks and downgrades. However, the effect on the majors would be more muted”

Seems like the notion of unburnable carbon has fully arrived in the world of finance.

In addition, Fatih Birol, the International Energy Agency’s chief economist, just gave an interview where he among other things talked about the IEA’s upcoming special report on climate change. Which will among other things address the carbon bubble issue. He also reiterated the IEA’s message that the door to 2°C is rapidly closing and that the half trillion dollars of fossil fuel subsidies that are being paid globally are “the public enemy number one for sustainable energy development”.

And in what may be a great help to further popularise the concept, David McCandless recently added a nifty infographic of our carbon budget problem on his “Information is Beautiful” website and on the Guardian’s website. The chart details not only the 2°C-compatible carbon budget we have left and how much carbon is embedded in fossil fuel reserves, it also lays out some of the consequences that various levels of global temperature increase would probably have. Highly recommended viewing. Though as I noted in my previous post, consideration of how much of the fossil fuel reserves may still be burned also needs to take into account the substantial projected CO2 emissions from non-energy related sources such as deforestation.

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