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Carbon bubble

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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 related to 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] 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.[2][3]

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]

Value

Author Bill McKibben has estimated that to sustain human life in the world, up to $20tn worth of fossil fuel reserves will need to remain in the ground.[4] 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

"Carbon bubble" appears to be a recent term. A search of English books on Google Ngram revealed no instances of this term.[5] The term was popularized by the Carbon Tracker Initiative[6] which published key reports in July 2011 and April 2013.[7][8] A popular media article on this subject was written by Bill McKibben and published in Rolling Stone magazine in July 2012.[9]

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",[10][11] in fossil fuel usage could be due to various factors:

  • Government action on climate change
In order to prevent "dangerous" climate change world governments should limit the concentration of atmospheric CO2 to around 350 ppm; this basically means that huge amounts of fossil fuels must stay in the ground.[12] [13]
  • Divestment campaigning
The ongoing fossil fuels divestment campaign in universities, churches[14][15] and pension funds[16] may contribute to increasing interest in divesting from fossil fuel companies.[17][18][19]
  • Cheaper clean energy
The price of renewable energy is continually dropping. As of 2014 new wind power is cheaper than new coal and gas power in Australia,[20] China[21] and the United States.[22] 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.[23]
  • Real pollution control
Fossil fuels are known for their huge negative externalities or hidden costs.[24] Tackling this market failure will make alternative energies more competitive and will reduce the consumption of fossil fuels.[25]
  • 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.[26] If a Carbon Tax of $25 per ton of CO2 is included the subsidies total $1.9 trillion only for 2011.[27] 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.[28]
  • Electric transportation
Switching to electricity based transportation like electrical vehicles from fossil fuel based transportation will reduce the demand for fossil fuels particularly petroleum.[29] 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.[30]
  • Efficiency
Increased investments in energy efficiency may lead to less consumed energy[31] even when the economy grows.[32] 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." [33] 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. ^ Fossil fuels face $30 trillion losses from climate, renewables, RenewEconomy, 28 April 2014
  3. ^ Stranded assets, fossilised revenues, Kepler Cheuvreux, 24 April 2014
  4. ^ Bill McKibben (7 February 2012). "Why the Energy-Industrial Elite Has It In for the Planet". TomDispatch.
  5. ^ Google book search
  6. ^ Carbon Tracker Initiative
  7. ^ Unburnable Carbon – Are the world’s financial markets carrying a carbon bubble?
  8. ^ Unburnable carbon 2013: Wasted capital and stranded assets
  9. ^ Bill McKibben, Global Warming's Terrifying New Math, Rolling Stone, July 2012
  10. ^ Golden, Mark (9 July 2013). "Stanford researchers say 'peak oil' concerns should ease". Stanford Report.
  11. ^ Randall, Tom (18 November 2013). "Oil's Future Draws Blood and Gore in Investment Portfolios". Bloomberg.
  12. ^ Revkin, Andrew C. (2 May 2013). "On 'Unburnable Carbon' and the Specter of a 'Carbon Bubble'". The New York Times.
  13. ^ Megan, Scott (18 September 2014). "New York: where the carbon bubble threat goes mainstream?". RTCC.
  14. ^ Church Dropping Fossil Fuel Investments, The New York Times, 3 July 2013
  15. ^ World Council of Churches Endorses Fossil Fuel Divestment, 350.org, 11 July 2014
  16. ^ Oral Evidence Taken before the Environmental Audit Committee, House of Commons Environmental Audit Committee, 26 June 2013
  17. ^ Preventing a carbon bubble crash, ABS, 13 May 2013
  18. ^ The Economic Case for Divesting from Fossil Fuels, Renewable Energy World, 15 May 2013
  19. ^ Fossil-free investment portfolios soared 50% in 2013, Responding to Climate Change (RTCC), 15 May 2014
  20. ^ Paton, James (7 February 2013). "Australian Wind Energy Now Cheaper Than Coal, Gas, BNEF Says". Bloomberg.
  21. ^ Parkinson, Giles (21 May 2014). "Solar grid parity – why Australia leads the world". Reneweconomy.
  22. ^ 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.
  23. ^ German PV drops to 15 cents max, Renewables International, 2 May 2013
  24. ^ Malone, Scott (16 February 2011). "Coal's hidden costs top $345 billion in U.S.: study". Reuters.
  25. ^ Wong, Edward (21 March 2013). "As Pollution Worsens in China, Solutions Succumb to Infighting". The New York Times.
  26. ^ EWEA Blog: Global fossil fuel subsidies amount to $1.9 trillion – IMF, EWEA, 5 April 2013
  27. ^ IMF Calls for Global Reform of Energy Subsidies: Sees Major Gains for Economic Growth and the Environment, IMF, 27 March 2013
  28. ^ Poole, Lauren (9 May 2013). "Beyond the PTC – Wind Energy's Future". Renewable Energy World.
  29. ^ “Peak Oil” Less A Concern As Alternatives Reduce Demand, Cleantechnica , July 23rd, 2013
  30. ^ GM, ABB Demonstrate Chevrolet Volt Battery Reuse Unit, General Motors, November 11, 2012
  31. ^ Energy Intensity: The Secret Revolution, Forbes, 18 July 2014
  32. ^ Energy is gradually decoupling from economic growth, FT, 17 January 2014
  33. ^ MILLENNIALS IN MOTION, U.S. PIRG Education Fund, OCTOBER 14, 2014
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