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[[File:CarbonBubble ENG.svg|thumb|300px|Carbon Bubble according to data by the Carbon Tracker Initiative 2013.]]
[[File:CarbonBubble ENG.svg|thumb|300px|Carbon Bubble according to data by the Carbon Tracker Initiative 2013.]]
A '''carbon bubble''' is the idea that there is a [[Stock market bubble|bubble]] in valuation of companies related to [[Fossil fuel|fossil-fuel-based]] energy production. This is because true costs of [[carbon dioxide]] in intensifying [[global warming]] are not taken into account in a company's stock market [[Valuation (finance)|valuation]].<ref name=MPcommittee>{{cite web|url=http://www.theguardian.com/environment/2014/mar/06/carbon-bubble-threat-uk-economy-fossil-fuels-mps |title='Carbon bubble' poses serious threat to UK economy, MPs warn|last=Harvey|first=Fiona|publisher= [[The Guardian]]|date=6 March 2014|accessdate=6 March 2014}}</ref> Currently the price of fossil fuels companies [[Share (finance)|shares]] is calculated under the assumption that all fossil fuel reserves will be consumed. An estimate made by Kepler Chevreux puts the loss in value of the fossil fuel companies due to the impact of the growing renewables industry at $28&nbsp;trillion over the next two decades.<ref>[http://reneweconomy.com.au/2014/28-trillion-11465 Fossil fuels face $30 trillion losses from climate, renewables], RenewEconomy, 28 April 2014</ref><ref>[http://www.keplercheuvreux.com/pdf/research/EG_EG_253208.pdf Stranded assets, fossilised revenues], Kepler Cheuvreux, 24 April 2014</ref> A more recent analysis made by [[Citi]] puts that figure at $100 trillion. <ref>[http://reneweconomy.com.au/2015/citigroup-sees-100-trillion-of-stranded-assets-if-paris-succeeds-13431 Citigroup sees $100 trillion of stranded assets if Paris succeeds], RenewEconomy, 25 August 2015</ref><ref>[https://www.citivelocity.com/citigps/ReportSeries.action ENERGY DARWINISM II], CitiGPS, 14 August 2015</ref>
A '''carbon bubble''' is the idea that there is a [[Stock market bubble|bubble]] in valuation of companies dependent on [[Fossil fuel|fossil-fuel-based]] energy production. This is because true costs of [[carbon dioxide]] in intensifying [[global warming]] are not taken into account in a company's stock market [[Valuation (finance)|valuation]].<ref name=MPcommittee>{{cite web|url=http://www.theguardian.com/environment/2014/mar/06/carbon-bubble-threat-uk-economy-fossil-fuels-mps |title='Carbon bubble' poses serious threat to UK economy, MPs warn|last=Harvey|first=Fiona|publisher= [[The Guardian]]|date=6 March 2014|accessdate=6 March 2014}}</ref><ref name="Rubin">{{cite book|url=http://www.penguinrandomhouse.com/books/240901/the-carbon-bubble-by-jeff-rubin/ | last=Rubin | first=Jeff | title=The Carbon Bubble |publisher= [[Penguin Random House]]| isbn=978-0345814715 | date=12 May 2015 | accessdate=9 October 2015}}</ref> Currently the price of fossil fuels companies [[Share (finance)|shares]] is calculated under the assumption that all fossil fuel reserves will be consumed. An estimate made by Kepler Chevreux puts the loss in value of the fossil fuel companies due to the impact of the growing renewables industry at $28&nbsp;trillion over the next two decades.<ref name=K-C>{{cite news | url=http://reneweconomy.com.au/2014/28-trillion-11465 | title=Fossil fuels face $30&nbsp;trillion losses from climate, renewables | author=Giles Parkinson | publisher=Renew Economy | date=28 April 2014}}</ref><ref name=Lewis>{{cite web| first=Mark C. | last=Lewis | title=Stranded assets, fossilised revenues | url=http://web.archive.org/web/20151022181514/https://www.keplercheuvreux.com/pdf/research/EG_EG_253208.pdf | date=24 April 2014 | publisher= [[Kepler Cheuvreux]]}}</ref> A more recent analysis made by [[Citi]] puts that figure at $100 trillion. <ref>[http://reneweconomy.com.au/2015/citigroup-sees-100-trillion-of-stranded-assets-if-paris-succeeds-13431 Citigroup sees $100 trillion of stranded assets if Paris succeeds], RenewEconomy, 25 August 2015</ref><ref name=Darwin2>{{cite web| url=https://ir.citi.com/E8%2B83ZXr1vd%2Fqyim0DizLrUxw2FvuAQ2jOlmkGzr4ffw4YJCK8s0q2W58AkV%2FypGoKD74zHfji8%3D | title=Energy Darwinism II | publisher=Citi GPS | date= 14 August 2015 | accessdate=9 November 2015}}</ref>


Analysts in both the petroleum and financial industries are concluding that the "age of oil" has already reached a new stage where the excess supply that appeared in late 2014 may continue to prevail in the future.<ref name=Spencer>{{cite report
According to the [[UK]]'s [[Committee on Climate Change]], overvaluing companies that produce fossil fuels and greenhouse gases poses a serious threat to the economy. The committee warned the British government and Bank of England of the risks of the carbon bubble in 2014.<ref name=MPcommittee />
|url=http://www.bp.com/content/dam/bp/pdf/speeches/2015/new-economics-of-oil-spencer-dale.pdf
|title= New Economics of Oil | last=Dale | first=Spencer
publisher= BP
|date= 13 October 2015
|accessdate=6 November 2015 }}</ref><ref name=Shilling>{{cite news
|url=http://www.bloombergview.com/articles/2015-08-20/optimists-were-wrong-to-predict-oil-prices-would-soon-rise-again
|title= A Funny Thing Happened on the Way to $80 Oil | last=[[Gary Shilling|Shilling]] | first = A. Gary
| work= [[Bloomberg News]] |publisher= [[Bloomberg L.P.]]
|date= 20 August 2015
|accessdate=6 November 2015 }}</ref>
A consensus appears to be emerging that an international agreement will be reached to introduce measures to constrain the combustion of hydrocarbons in an effort to limit global temperature rise to the nominal 2&nbsp;°C that is consensually predicted to limit environmental harm to tolerable levels.<ref name=Paris>{{cite news
|url=http://www.newyorker.com/magazine/2015/08/24/the-weight-of-the-world
|title= The Weight of the World | last=Kolbert | first = Elizabeth
| work= [[The New Yorker]] |publisher= Condé Nast
|date= 24 August 2015
|accessdate=6 November 2015 }}</ref>

According to the [[UK]]'s [[Committee on Climate Change]], overvaluing companies that produce fossil fuels and greenhouse gases poses a serious threat to the economy. The committee warned the British government and [[Bank of England]] of the risks of the carbon bubble in 2014.<ref name=MPcommittee /> The following year, [[Mark Carney]]​, the Governor of the Bank of England, in his lecture to [[Lloyd's of London]], ​warned that "the window of opportunity is finite and shrinking" for responding to the threat that climate change poses to financial resilience and longer-term prosperity, which he called the "tragedy of the horizon". <ref name=Carney>{{cite report| title=Breaking the tragedy of the horizon - climate change and financial stability | author=Mark Carney | publisher=[[Bank of England]] | url=http://www.bankofengland.co.uk/publications/Pages/speeches/2015/844.aspx | date=29 September 2015 | accessdate=9 November 2015}}</ref> That same month, the [[Prudential Regulation Authority (United Kingdom)|Prudential Regulation Authority]] of the Bank of England issued a report discussing the risks and opportunities that climate change presents to the insurance industry.<ref name=PRA>{{cite report| title=The impact of climate change on the UK insurance sector | author= | publisher=[[Bank of England]] | url=http://www.bankofengland.co.uk/pra/Documents/supervision/activities/pradefra0915.pdf | date=September 2015 | accessdate=9 November 2015}}</ref>


== Value ==
== Value ==
Author [[Bill McKibben]] has estimated that to sustain human life in the world, up to $20tn{{what?|date=July 2015}} worth of fossil fuel reserves will need to remain in the ground.<ref>{{cite web |url=http://www.tomdispatch.com/archive/175499/ |title=Why the Energy-Industrial Elite Has It In for the Planet |author=Bill McKibben |date=7 February 2012 |publisher=TomDispatch}}</ref> The [[Stern report]] in 2006 stated that the benefits of strong, early action to decrease the use of oil, coal and gas considerably outweigh the costs. Fossil fuel contributors, the building industry, and land use practices ignore the responsibility of the external costs and ignore the [[polluter pays principle]] according to which climate change costs will be paid by historical climate polluters.
Author [[Bill McKibben]] has estimated that to sustain human life in the world, up to $20&nbsp;trillion worth of fossil fuel reserves will need to remain in the ground.<ref>{{cite web |url=http://www.tomdispatch.com/archive/175499/ |title=Why the Energy-Industrial Elite Has It In for the Planet |author=Bill McKibben |date=7 February 2012 |publisher=TomDispatch}}</ref> The [[Stern report]] in 2006 stated that the benefits of strong, early action to decrease the use of oil, coal and gas considerably outweigh the costs. Fossil fuel contributors, the building industry, and land use practices ignore the responsibility of the external costs and ignore the [[polluter pays principle]] according to which climate change costs will be paid by historical climate polluters.


==Etymology==
==Etymology==
⚫
The term "Carbon bubble" arose in the early 21<sup>st</sup> century from the increasing awareness of the impact of fossil fuel combustion on global temperatures. The term appeared in a popular media article by [[Bill McKibben]], published in [[Rolling Stone]] magazine in July 2012.<ref name="rollingstone">{{cite web|url=http://www.rollingstone.com/politics/news/global-warmings-terrifying-new-math-20120719 |title=Global Warming's Terrifying New Math | date=19 July 2012 |publisher=[[Rolling Stone]] | accessdate=10 July 2015}}</ref>
"Carbon bubble" appears to be a recent term. A search of English books on Google Ngram revealed no instances of this term.<ref>[http://books.google.com/ngrams/graph?content=carbon+bubble%2CCarbon+bubble%2CCarbon+Bubble&year_start=1800&year_end=2013&corpus=15&smoothing=3&share= Google book search]{{Dead link|date=July 2015}}</ref>
The term was popularized by the ''[[Carbon Tracker Initiative]]''<ref name="carbontracker">{{cite web|url=http://www.carbontracker.org/ |title=Financial specialists making carbon investment risk real today in the capital market &#124; Carbon Tracker Initiative |publisher=carbontracker.org|accessdate=10 July 2015}}</ref> which published key reports in July 2011 and April 2013.<ref>[http://www.carbontracker.org/carbonbubble ''Unburnable Carbon – Are the world’s financial markets carrying a carbon bubble?'']</ref><ref>[http://www.carbontracker.org/wastedcapital ''Unburnable carbon 2013: Wasted capital and stranded assets'']</ref>
It was further popularized by the ''[[Carbon Tracker Initiative]]'',<ref name="carbontracker">{{cite web|url=http://www.carbontracker.org/ |title=Financial specialists making carbon investment risk real today in the capital market &#124 |publisher=Carbon Tracker Initiative|accessdate=10 July 2015}}</ref> which published key reports in July 2011 and April 2013.<ref>[http://www.carbontracker.org/carbonbubble ''Unburnable Carbon – Are the world’s financial markets carrying a carbon bubble?'']</ref><ref>[http://www.carbontracker.org/wastedcapital ''Unburnable carbon 2013: Wasted capital and stranded assets'']</ref> These were followed later in 2013 by a report from the [[Demos]] think tank.<ref name=Demos>{{cite report
|url=http://www.demos.org/news/beware-carbon-bubble
⚫
A popular media article on this subject was written by [[Bill McKibben]] and published in Rolling Stone magazine in July 2012.<ref name="rollingstone">{{cite web|url=http://www.rollingstone.com/politics/news/global-warmings-terrifying-new-math-20120719 |title=''Global Warming's Terrifying New Math'', Rolling Stone, July 2012 |publisher=rollingstone.com|accessdate=10 July 2015}}</ref>
|title= Beware of the Carbon Bubble | last1=McElwee | first1=Sean | last2=Daly | first2=Lew
publisher= [[Demos (U.S. think tank)|Demos]]
|date= 23 December 2013
|accessdate=6 November 2015 }}</ref>


== Prevention ==
== Prevention ==
Line 19: Line 41:


*Government action on climate change
*Government action on climate change
:A detailed academic study of the consequences for the producers of the various hydrocarbon fuels concluded in early 2015 that a third of global oil reserves, half of gas reserves and over 80% of current coal reserves should remain underground from 2010 to 2050 in order to meet the target of no more than a 2&nbsp;°C rise in average global temperature. Hence continued exploration or development of reserves would be extraneous to needs. To meet the 2&nbsp;°C target, strong measures would be needed to suppress demand, such as a substantial carbon tax leaving a lower price for the producers from a smaller market. The impact on producers would vary widely depending on the cost of production in their areas of operation. For example, the impact in Canada would be far larger than in the U.S. Open-pit mining of [[bituminous sands]] in Canada would soon drop to negligible levels after 2020 in all scenarios considered because it is considerably less economic than other methods of production.<ref name=Dyer>{{cite web
⚫
:In order to prevent "dangerous" [[climate change]] world governments should limit the concentration of atmospheric CO<sub>2</sub> to around 350 ppm; this basically means that huge amounts of fossil fuels must stay in the ground.<ref>{{cite web|last=Revkin|first=Andrew C.|url=http://dotearth.blogs.nytimes.com/2013/05/03/on-unburnable-carbon-and-the-specter-of-a-carbon-bubble/|title= On ‘Unburnable Carbon’ and the Specter of a ‘Carbon Bubble’|publisher=The New York Times|date= 2 May 2013}}</ref><ref>{{cite web|last=Megan|first=Scott|url=http://www.rtcc.org/2014/09/18/new-york-where-the-carbon-bubble-threat-goes-mainstream/ |title=New York: where the carbon bubble threat goes mainstream? |publisher=RTCC|date=18 September 2014}}</ref>
| url = http://www.cbc.ca/news/politics/climate-change-study-says-most-of-canada-s-oil-reserves-should-be-left-underground-1.2893013
| title = Climate change study says most of Canada's oil reserves should be left underground
| last1 = Dyer
| first1 = Evan
| date = Jan 7, 2015
| website = http://www.cbc.ca/news
| publisher = Canadian Broadcasting Corporation
| accessdate = 6 November 2015
}}</ref><ref name=Nature1>
{{cite journal
|url=http://www.nature.com/nature/journal/v517/n7533/full/517150a.html
|title=Unburnable fossil-fuel reserves
|journal=[[Nature (journal)]] |date=January 2015 |volume= 517 |pages=150–2 |issue= 7533
|last1=Jacob |first1=Michael
|last2=Hilaire |first2=Jérȏme
publisher= Macmillan Publishers |doi=10.1038/517150a}}</ref><ref name=Nature2>
{{cite journal
|url=http://www.nature.com/nature/journal/v517/n7533/full/nature14016.html
|title=The geographical distribution of fossil fuels unused when limiting global warming to 2°C
|journal=[[Nature (journal)]] |date=January 2015 |volume= 517 |pages=187–90 |issue= 7533
|last1=McGlade |first1=Christophe
|last2=Ekins |first2=Paul
⚫
publisher= Macmillan Publishers |doi=10.1038/nature14016}}</ref><ref>{{cite web|last=Revkin|first=Andrew C.|url=http://dotearth.blogs.nytimes.com/2013/05/03/on-unburnable-carbon-and-the-specter-of-a-carbon-bubble/|title= On ‘Unburnable Carbon’ and the Specter of a ‘Carbon Bubble’|publisher=The New York Times|date= 2 May 2013}}</ref><ref>{{cite web|last=Megan|first=Scott|url=http://www.rtcc.org/2014/09/18/new-york-where-the-carbon-bubble-threat-goes-mainstream/ |title=New York: where the carbon bubble threat goes mainstream? |publisher=RTCC|date=18 September 2014}}</ref>


*Divestment campaigning
*Divestment campaigning
:The ongoing fossil fuels [[divestment campaign]] in universities, churches<ref>[http://www.nytimes.com/2013/07/04/us/church-dropping-fossil-fuel-investments.html Church Dropping Fossil Fuel Investments], The New York Times, 3 July 2013</ref><ref>[http://350.org/press-release/world-council-of-churches-endorses-fossil-fuel-divestment/ World Council of Churches Endorses Fossil Fuel Divestment], 350.org, 11 July 2014</ref> and pension funds<ref>[http://www.publications.parliament.uk/pa/cm201314/cmselect/cmenvaud/uc191-i/uc19101.htm Oral Evidence Taken before the Environmental Audit Committee], House of Commons Environmental Audit Committee, 26 June 2013</ref> may contribute to increasing interest in divesting from fossil fuel companies.<ref>[http://www.abc.net.au/environment/articles/2013/05/13/3751205.htm Preventing a carbon bubble crash], ABS, 13 May 2013</ref><ref>[http://www.renewableenergyworld.com/rea/news/article/2013/05/the-economic-case-for-divesting-from-fossil-fuels?page=all The Economic Case for Divesting from Fossil Fuels], Renewable Energy World, 15 May 2013</ref><ref>[http://www.rtcc.org/2014/05/15/fossil-free-investment-portfolios-soared-50-in-2013/ Fossil-free investment portfolios soared 50% in 2013], Responding to Climate Change (RTCC), 15 May 2014</ref>
:The ongoing fossil fuels [[divestment campaign]] in universities, churches<ref>[http://www.nytimes.com/2013/07/04/us/church-dropping-fossil-fuel-investments.html Church Dropping Fossil Fuel Investments], The New York Times, 3 July 2013</ref><ref>[http://350.org/press-release/world-council-of-churches-endorses-fossil-fuel-divestment/ World Council of Churches Endorses Fossil Fuel Divestment], 350.org, 11 July 2014</ref> and pension funds<ref>[http://www.publications.parliament.uk/pa/cm201314/cmselect/cmenvaud/uc191-i/uc19101.htm Oral Evidence Taken before the Environmental Audit Committee], House of Commons Environmental Audit Committee, 26 June 2013</ref> may contribute to increasing interest in divesting from fossil fuel companies.<ref>[http://www.abc.net.au/environment/articles/2013/05/13/3751205.htm Preventing a carbon bubble crash], ABS, 13 May 2013</ref><ref>[http://www.renewableenergyworld.com/rea/news/article/2013/05/the-economic-case-for-divesting-from-fossil-fuels?page=all The Economic Case for Divesting from Fossil Fuels], Renewable Energy World, 15 May 2013</ref><ref>[http://www.rtcc.org/2014/05/15/fossil-free-investment-portfolios-soared-50-in-2013/ Fossil-free investment portfolios soared 50% in 2013], Responding to Climate Change (RTCC), 15 May 2014</ref> In early 2014, the [[FTSE Group]], [[BlackRock]] and the [[Natural Resources Defense Council]] collaborated in the creation of a [[stock market index]] series that excludes companies linked to exploration, ownership or extraction of carbon-based fossil fuel reserves. These indices are intended to make it easier for investors to steer their investments away from such companies.<ref name=Indices>{{cite news| title=Fossil Fuel-Free Index Will Help Investors Manage Climate Risks | author=Mike Scott | publisher=[[Forbes]] | url=http://www.forbes.com/sites/mikescott/2014/05/01/fossil-fuel-free-index-will-help-investors-manage-climate-risks/ | date=1 May 2014 | accessdate=9 November 2015}}</ref>


*Cheaper clean energy
*Cheaper clean energy
:The price of [[renewable energy]] is continually dropping.<ref name=CarbonTracker>{{cite report
⚫
:The price of [[renewable energy]] is continually dropping. As of 2014 new wind power is cheaper than new coal and gas power in Australia,<ref>{{cite web|last=Paton|first=James|url=http://www.bloomberg.com/news/2013-02-06/australia-wind-energy-cheaper-than-coal-natural-gas-bnef-says.html|title=Australian Wind Energy Now Cheaper Than Coal, Gas, BNEF Says|publisher=Bloomberg|date= 7 February 2013}}</ref> China<ref>{{cite web|last=Parkinson|first=Giles|url=http://reneweconomy.com.au/2014/solar-grid-parity-why-australia-leads-the-world-80853|title=Solar grid parity – why Australia leads the world|publisher=Reneweconomy|date= 21 May 2014}}</ref> and the United States.<ref>{{cite web|last=Chen|first=Allan|url=http://newscenter.lbl.gov/2014/08/18/new-study-finds-price-of-wind-energy-in-us-at-an-all-time-low-competitiveness-of-wind-has-improved/|title=New Study Finds Price of Wind Energy in US at an All-Time Low; Competitiveness of Wind Has Improved|publisher=Lawrence Berkeley National Laboratory|date= 18 August 2014}}</ref> Also the electricity produced from a [[Photovoltaics|photovoltaic]] roof system is cheaper than the electricity from the grid in many countries and places in the world.<ref>[http://www.renewablesinternational.net/german-pv-drops-to-15-cents-max/150/510/62457/ German PV drops to 15 cents max], Renewables International, 2 May 2013</ref>
|url=http://www.carbontracker.org/report/lost_in_transition/
|title= Lost in Transition: How the energy sector is missing potential demand destruction | last1=Sussams | first1=Luke | last2=Leaton | first2=James | last3=Drew | first3=Tom
publisher= Carbon Tracker
|date= 21 October 2015
⚫
|accessdate=6 November 2015 }}</ref> As of 2014 new wind power is cheaper than new coal and gas power in Australia,<ref>{{cite web|last=Paton|first=James|url=http://www.bloomberg.com/news/2013-02-06/australia-wind-energy-cheaper-than-coal-natural-gas-bnef-says.html|title=Australian Wind Energy Now Cheaper Than Coal, Gas, BNEF Says|publisher=Bloomberg|date= 7 February 2013}}</ref> China<ref>{{cite web|last=Parkinson|first=Giles|url=http://reneweconomy.com.au/2014/solar-grid-parity-why-australia-leads-the-world-80853|title=Solar grid parity – why Australia leads the world|publisher=Reneweconomy|date= 21 May 2014}}</ref> and the United States.<ref>{{cite web|last=Chen|first=Allan|url=http://newscenter.lbl.gov/2014/08/18/new-study-finds-price-of-wind-energy-in-us-at-an-all-time-low-competitiveness-of-wind-has-improved/|title=New Study Finds Price of Wind Energy in US at an All-Time Low; Competitiveness of Wind Has Improved|publisher=Lawrence Berkeley National Laboratory|date= 18 August 2014}}</ref> Also the electricity produced from a [[Photovoltaics|photovoltaic]] roof system is cheaper than the electricity from the grid in many countries and places in the world.<ref>[http://www.renewablesinternational.net/german-pv-drops-to-15-cents-max/150/510/62457/ German PV drops to 15 cents max], Renewables International, 2 May 2013</ref>


*Real pollution control
*Real pollution control
Line 37: Line 87:


*Electric transportation
*Electric transportation
:Switching to [[Electric vehicle|electricity based transportation]] like electrical vehicles from fossil fuel based transportation will reduce the demand for fossil fuels particularly petroleum.<ref>[http://cleantechnica.com/2013/07/23/peak-oil-less-a-concern-as-alternatives-reduce-demand “Peak Oil” Less A Concern As Alternatives Reduce Demand], Cleantechnica, July 23rd, 2013</ref> Combining roof photovoltaics with second hand EV batteries will further reduce the dependence on fossil fuels as they will provide the needed [[Grid energy storage|grid storage]] for the times when the [[Intermittent energy source|intermittent]] renewable energy sources are not producing electricity.<ref>[http://media.gm.com/media/us/en/gm/news.detail.html/content/Pages/news/us/en/2012/Nov/electrification/1114_reuse.html GM, ABB Demonstrate Chevrolet Volt Battery Reuse Unit], General Motors, November 11, 2012</ref>
:Switching to [[Electric vehicle|electricity based transportation]] like electrical vehicles from fossil fuel based transportation will reduce the demand for fossil fuels particularly petroleum.<ref>[http://cleantechnica.com/2013/07/23/peak-oil-less-a-concern-as-alternatives-reduce-demand “Peak Oil” Less A Concern As Alternatives Reduce Demand], Cleantechnica, July 23rd, 2013</ref><ref name=CarbonTracker/> Combining roof photovoltaics with second hand EV batteries will further reduce the dependence on fossil fuels as they will provide the needed [[Grid energy storage|grid storage]] for the times when the [[Intermittent energy source|intermittent]] renewable energy sources are not producing electricity.<ref>[http://media.gm.com/media/us/en/gm/news.detail.html/content/Pages/news/us/en/2012/Nov/electrification/1114_reuse.html GM, ABB Demonstrate Chevrolet Volt Battery Reuse Unit], General Motors, November 11, 2012</ref>


*Efficiency
*Efficiency

Revision as of 23:32, 9 November 2015

Carbon Bubble according to data by the Carbon Tracker Initiative 2013.

A carbon bubble is the idea that there is a bubble in valuation of companies dependent on fossil-fuel-based energy production. This is because true costs of carbon dioxide in intensifying global warming are not taken into account in a company's stock market valuation.[1][2] Currently the price of fossil fuels companies shares is calculated under the assumption that all fossil fuel reserves will be consumed. An estimate made by Kepler Chevreux puts the loss in value of the fossil fuel companies due to the impact of the growing renewables industry at $28 trillion over the next two decades.[3][4] A more recent analysis made by Citi puts that figure at $100 trillion. [5][6]

Analysts in both the petroleum and financial industries are concluding that the "age of oil" has already reached a new stage where the excess supply that appeared in late 2014 may continue to prevail in the future.[7][8] A consensus appears to be emerging that an international agreement will be reached to introduce measures to constrain the combustion of hydrocarbons in an effort to limit global temperature rise to the nominal 2 °C that is consensually predicted to limit environmental harm to tolerable levels.[9]

According to the UK's Committee on Climate Change, overvaluing companies that produce fossil fuels and greenhouse gases poses a serious threat to the economy. The committee warned the British government and Bank of England of the risks of the carbon bubble in 2014.[1] The following year, Mark Carney​, the Governor of the Bank of England, in his lecture to Lloyd's of London, ​warned that "the window of opportunity is finite and shrinking" for responding to the threat that climate change poses to financial resilience and longer-term prosperity, which he called the "tragedy of the horizon". [10] That same month, the Prudential Regulation Authority of the Bank of England issued a report discussing the risks and opportunities that climate change presents to the insurance industry.[11]

Value

Author Bill McKibben has estimated that to sustain human life in the world, up to $20 trillion worth of fossil fuel reserves will need to remain in the ground.[12] The Stern report in 2006 stated that the benefits of strong, early action to decrease the use of oil, coal and gas considerably outweigh the costs. Fossil fuel contributors, the building industry, and land use practices ignore the responsibility of the external costs and ignore the polluter pays principle according to which climate change costs will be paid by historical climate polluters.

Etymology

The term "Carbon bubble" arose in the early 21st century from the increasing awareness of the impact of fossil fuel combustion on global temperatures. The term appeared in a popular media article by Bill McKibben, published in Rolling Stone magazine in July 2012.[13] It was further popularized by the Carbon Tracker Initiative,[14] which published key reports in July 2011 and April 2013.[15][16] These were followed later in 2013 by a report from the Demos think tank.[17]

Prevention

To avoid the carbon bubble companies should be forced by law to report on their greenhouse gas emissions and assess the risk this could pose to their future financial performance. According to Christiana Figueres, UNFCCC, companies have a duty to shareholders to move to a low-carbon economy, because of the effects of the carbon bubble.[1]

A reduction, or "peak",[18][19] in fossil fuel usage could be due to various factors:

  • Government action on climate change
A detailed academic study of the consequences for the producers of the various hydrocarbon fuels concluded in early 2015 that a third of global oil reserves, half of gas reserves and over 80% of current coal reserves should remain underground from 2010 to 2050 in order to meet the target of no more than a 2 °C rise in average global temperature. Hence continued exploration or development of reserves would be extraneous to needs. To meet the 2 °C target, strong measures would be needed to suppress demand, such as a substantial carbon tax leaving a lower price for the producers from a smaller market. The impact on producers would vary widely depending on the cost of production in their areas of operation. For example, the impact in Canada would be far larger than in the U.S. Open-pit mining of bituminous sands in Canada would soon drop to negligible levels after 2020 in all scenarios considered because it is considerably less economic than other methods of production.[20][21][22][23][24]
  • Divestment campaigning
The ongoing fossil fuels divestment campaign in universities, churches[25][26] and pension funds[27] may contribute to increasing interest in divesting from fossil fuel companies.[28][29][30] In early 2014, the FTSE Group, BlackRock and the Natural Resources Defense Council collaborated in the creation of a stock market index series that excludes companies linked to exploration, ownership or extraction of carbon-based fossil fuel reserves. These indices are intended to make it easier for investors to steer their investments away from such companies.[31]
  • Cheaper clean energy
The price of renewable energy is continually dropping.[32] As of 2014 new wind power is cheaper than new coal and gas power in Australia,[33] China[34] and the United States.[35] Also the electricity produced from a photovoltaic roof system is cheaper than the electricity from the grid in many countries and places in the world.[36]
  • Real pollution control
Fossil fuels are known for their huge negative externalities or hidden costs.[37] Tackling this market failure will make alternative energies more competitive and will reduce the consumption of fossil fuels.[38]
  • Cancellation of government energy subsidies
According to the International Monetary Fund, governments around the world gave $523 billion direct subsidies for fossil fuels in 2011.[39] If a carbon tax of $25 per ton of CO2 is included the subsidies total $1.9 trillion only for 2011.[40] Removing fossil fuels subsidies will further reduce their consumption and make the alternative energies even more competitive.
  • Renewable corporations lobbying
As the penetration of the renewable energy increases so will the wealth of the renewable energy corporations. This and the increasing number of employees in the renewable energy sector will inevitably transform into political lobbying against fossil fuels.[41]
  • Electric transportation
Switching to electricity based transportation like electrical vehicles from fossil fuel based transportation will reduce the demand for fossil fuels particularly petroleum.[42][32] Combining roof photovoltaics with second hand EV batteries will further reduce the dependence on fossil fuels as they will provide the needed grid storage for the times when the intermittent renewable energy sources are not producing electricity.[43]
  • Efficiency
Increased investments in energy efficiency may lead to less consumed energy[44] even when the economy grows.[45] Without growth in energy usage the prices of fossil fuels will decrease and most of the mega energy projects may be uneconomical.
  • Changes in consumer behavior
According to latest research by U.S. PIRG Education Fund: "Over the last decade – after 60-plus years of steady increases – the number of miles driven by the average American has been falling. Young Americans have experienced the greatest changes: driving less; taking transit, biking and walking more; and seeking out places to live in cities and walkable communities where driving is an option, not a necessity." [46] Meaning that the demand for oil in US may peak sooner than expected.

References

  1. ^ a b c Harvey, Fiona (6 March 2014). "'Carbon bubble' poses serious threat to UK economy, MPs warn". The Guardian. Retrieved 6 March 2014.
  2. ^ Rubin, Jeff (12 May 2015). The Carbon Bubble. Penguin Random House. ISBN 978-0345814715. Retrieved 9 October 2015.
  3. ^ Giles Parkinson (28 April 2014). "Fossil fuels face $30 trillion losses from climate, renewables". Renew Economy.
  4. ^ Lewis, Mark C. (24 April 2014). "Stranded assets, fossilised revenues" (PDF). Kepler Cheuvreux.
  5. ^ Citigroup sees $100 trillion of stranded assets if Paris succeeds, RenewEconomy, 25 August 2015
  6. ^ "Energy Darwinism II". Citi GPS. 14 August 2015. Retrieved 9 November 2015.
  7. ^ Dale, Spencer publisher= BP (13 October 2015). New Economics of Oil (PDF) (Report). Retrieved 6 November 2015. {{cite report}}: Missing pipe in: |first= (help); line feed character in |first= at position 11 (help)
  8. ^ Shilling, A. Gary (20 August 2015). "A Funny Thing Happened on the Way to $80 Oil". Bloomberg News. Bloomberg L.P. Retrieved 6 November 2015.
  9. ^ Kolbert, Elizabeth (24 August 2015). "The Weight of the World". The New Yorker. Condé Nast. Retrieved 6 November 2015.
  10. ^ Mark Carney (29 September 2015). Breaking the tragedy of the horizon - climate change and financial stability (Report). Bank of England. Retrieved 9 November 2015.
  11. ^ The impact of climate change on the UK insurance sector (PDF) (Report). Bank of England. September 2015. Retrieved 9 November 2015.
  12. ^ Bill McKibben (7 February 2012). "Why the Energy-Industrial Elite Has It In for the Planet". TomDispatch.
  13. ^ "Global Warming's Terrifying New Math". Rolling Stone. 19 July 2012. Retrieved 10 July 2015.
  14. ^ "Financial specialists making carbon investment risk real today in the capital market &#124". Carbon Tracker Initiative. Retrieved 10 July 2015.
  15. ^ Unburnable Carbon – Are the world’s financial markets carrying a carbon bubble?
  16. ^ Unburnable carbon 2013: Wasted capital and stranded assets
  17. ^ McElwee, Sean; Daly, Lew publisher= Demos (23 December 2013). Beware of the Carbon Bubble (Report). Retrieved 6 November 2015. {{cite report}}: Missing pipe in: |first2= (help); line feed character in |first2= at position 5 (help)
  18. ^ Golden, Mark (9 July 2013). "Stanford researchers say 'peak oil' concerns should ease". Stanford Report.
  19. ^ Randall, Tom (18 November 2013). "Oil's Future Draws Blood and Gore in Investment Portfolios". Bloomberg.
  20. ^ Dyer, Evan (Jan 7, 2015). "Climate change study says most of Canada's oil reserves should be left underground". http://www.cbc.ca/news. Canadian Broadcasting Corporation. Retrieved 6 November 2015. {{cite web}}: External link in |website= (help)
  21. ^ Jacob, Michael; Hilaire, Jérȏme publisher= Macmillan Publishers (January 2015). "Unburnable fossil-fuel reserves". Nature (journal). 517 (7533): 150–2. doi:10.1038/517150a. {{cite journal}}: Missing pipe in: |first2= (help); line feed character in |first2= at position 8 (help)
  22. ^ McGlade, Christophe; Ekins, Paul publisher= Macmillan Publishers (January 2015). "The geographical distribution of fossil fuels unused when limiting global warming to 2°C". Nature (journal). 517 (7533): 187–90. doi:10.1038/nature14016. {{cite journal}}: Missing pipe in: |first2= (help); line feed character in |first2= at position 5 (help)
  23. ^ Revkin, Andrew C. (2 May 2013). "On 'Unburnable Carbon' and the Specter of a 'Carbon Bubble'". The New York Times.
  24. ^ Megan, Scott (18 September 2014). "New York: where the carbon bubble threat goes mainstream?". RTCC.
  25. ^ Church Dropping Fossil Fuel Investments, The New York Times, 3 July 2013
  26. ^ World Council of Churches Endorses Fossil Fuel Divestment, 350.org, 11 July 2014
  27. ^ Oral Evidence Taken before the Environmental Audit Committee, House of Commons Environmental Audit Committee, 26 June 2013
  28. ^ Preventing a carbon bubble crash, ABS, 13 May 2013
  29. ^ The Economic Case for Divesting from Fossil Fuels, Renewable Energy World, 15 May 2013
  30. ^ Fossil-free investment portfolios soared 50% in 2013, Responding to Climate Change (RTCC), 15 May 2014
  31. ^ Mike Scott (1 May 2014). "Fossil Fuel-Free Index Will Help Investors Manage Climate Risks". Forbes. Retrieved 9 November 2015.
  32. ^ a b Sussams, Luke; Leaton, James; Drew, Tom publisher= Carbon Tracker (21 October 2015). Lost in Transition: How the energy sector is missing potential demand destruction (Report). Retrieved 6 November 2015. {{cite report}}: Missing pipe in: |first3= (help); line feed character in |first3= at position 4 (help)
  33. ^ Paton, James (7 February 2013). "Australian Wind Energy Now Cheaper Than Coal, Gas, BNEF Says". Bloomberg.
  34. ^ Parkinson, Giles (21 May 2014). "Solar grid parity – why Australia leads the world". Reneweconomy.
  35. ^ Chen, Allan (18 August 2014). "New Study Finds Price of Wind Energy in US at an All-Time Low; Competitiveness of Wind Has Improved". Lawrence Berkeley National Laboratory.
  36. ^ German PV drops to 15 cents max, Renewables International, 2 May 2013
  37. ^ Malone, Scott (16 February 2011). "Coal's hidden costs top $345 billion in U.S.: study". Reuters.
  38. ^ Wong, Edward (21 March 2013). "As Pollution Worsens in China, Solutions Succumb to Infighting". The New York Times.
  39. ^ EWEA Blog: Global fossil fuel subsidies amount to $1.9 trillion – IMF, EWEA, 5 April 2013
  40. ^ IMF Calls for Global Reform of Energy Subsidies: Sees Major Gains for Economic Growth and the Environment, IMF, 27 March 2013
  41. ^ Poole, Lauren (9 May 2013). "Beyond the PTC – Wind Energy's Future". Renewable Energy World.
  42. ^ “Peak Oil” Less A Concern As Alternatives Reduce Demand, Cleantechnica, July 23rd, 2013
  43. ^ GM, ABB Demonstrate Chevrolet Volt Battery Reuse Unit, General Motors, November 11, 2012
  44. ^ Energy Intensity: The Secret Revolution, Forbes, 18 July 2014
  45. ^ "Energy is gradually decoupling from economic growth | FT Alphaville". web.archive.org. 17 January 2014. Retrieved 10 July 2015.
  46. ^ MILLENNIALS IN MOTION, U.S. PIRG Education Fund, OCTOBER 14, 2014
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