John Kemp is a Reuters market analyst. The views expressed are his own.
(Reuters) – Two-thirds of the world’s already discovered reserves of oil, coal and natural gas must remain unburned if the rise in average global temperatures is to be limited to 2 degrees Celsius by 2050, according to the International Energy Agency.
But coal miners and oil and gas companies round the world allocated $674 billion to finding even more reserves and new ways of extracting them in 2012/13. Much of this investment risks being wasted, according to the Carbon Tracker Initiative, which is campaigning to get investors to think again. (“Unburnable carbon 2013: wasted assets and stranded capital”)
“It is possible that much of this additional spending would prove fruitless. At worst, these assets might be ‘stranded’ forever,” Martin Wolf, the celebrated chief economics commentator of the Financial Times, wrote in a sympathetic review recently. (“A climate fix would ruin investors” June 17)
Carbon Tracker Initiative is part of a broader divestment movement pressing universities, pension funds and other socially responsible investors to boycott shares and loans in fossil fuel companies to force them to leave the oil, gas and coal “down there”. (“Stranded assets and the fossil fuel divestment campaign: what does divestment mean for the valuation of fossil fuel assets?” Oct 2013)
The divestment campaign has drawn a swift response. Major oil and gas companies such as Exxon and Shell reject the claim that their exploration and development spending is being wasted. “We do not believe that any of our proven reserves will become stranded,” Shell wrote in a letter to investors on May 16.
“While the stranded asset notion may appear to be a strong and thought-through case, it does have some fundamental flaws, and there is a risk that some interest groups use it to trivialise the important societal issue of rising levels of carbon dioxide in the atmosphere,” the company complained in a detailed response.
GAMBLING ON INACTION
There is an obvious inconsistency between companies continuing to invest in developing more fossil fuels while governments maintain they are still committed to the 2 degree target.
According to Wolf: “Something will have to give: either the world will abandon its pledge to keep emissions below the level thought to produce a temperature rise of 2C, or the fossil fuel companies are holding stranded assets and investing in unusable ones. Investors are implicitly betting on the former possibility.”
He concluded: “Major energy producers do not believe governments will do what they promise. They envisage a very different and quite unrevolutionary energy future in which the reserves they now possess and those they plan to develop will all be burnt.”
Wolf is right about the contradiction between investment policies and climate targets. It is more likely the world will miss the 2 degree target than that fossil fuel reserves will be stranded.
For the rest of this column, click here: http://in.reuters.com/article/2014/06/23/climatechange-coal-kemp-idINL6N0P13ST20140623