'Carbon Bubble' Could Spark Global Financial Crisis, Study Warns

The Guardian - Fiona Harvey

Advances in clean energy expected to cause a sudden drop in demand for fossil fuels, leaving companies with trillions in stranded assets

A sudden drop in demand for fossil fuels could happen before 2035, a new study shows. Photograph: Florian Gaertner/Photothek via Getty Images

Plunging prices for renewable energy and rapidly increasing investment in low-carbon technologies could leave fossil fuel companies with trillions in stranded assets and spark a global financial crisis, a new study has found.
A sudden drop in demand for fossil fuels before 2035 is likely, according to the study, given the current global investments and economic advantages in a low-carbon transition.
The existence of a “carbon bubble” – assets in fossil fuels that are currently overvalued because, in the medium and long-term, the world will have to drastically reduce greenhouse gas emissions – has long been proposed by academics, activists and investors.
The new study, published on Monday in the journal Nature Climate Change, shows that a sharp slump in the value of fossil fuels would cause this bubble to burst, and posits that such a slump is likely before 2035 based on current patterns of energy use.
Crucially, the findings suggest that a rapid decline in fossil fuel demand is no longer dependent on stronger policies and actions from governments around the world. Instead, the authors’ detailed simulations found the demand drop would take place even if major nations undertake no new climate policies, or reverse some previous commitments.
That is because advances in technologies for energy efficiency and renewable power, and the accompanying drop in their price, have made low-carbon energy much more economically and technically attractive.

Dr Jean-François Mercure, the lead author, from Radboud and Cambridge universities, told the Guardian: “This is happening already – we have observed the data and made projections from there. With more policies from governments, this would happen faster.
But without strong [climate] policies, it is already happening. To some degree at least you can’t stop it. But if people stop putting funds now in fossil fuels, they may at least limit their losses.”
By moving to a lower-carbon footing, companies and investors could take advantage of the transition that is occurring, rather than trying to fight the growing trend. Mercure said fossil fuel companies were likely to fight among each other for the remaining market, rather than have a strong impact on renewable energy businesses.
Prof Jorge Viñuales, co-author, said: “Contrary to investor expectations, the stranding of fossil fuel assets may happen even without new climate policies. Individual nations cannot avoid the situation by ignoring the Paris agreement or burying their heads in coal and tar sands.”
However, Mercure also warned that the transition was happening too slowly to stave off the worst effects of climate change. Although the trajectory towards a low-carbon economy would continue, to keep within 2C above pre-industrial levels – the limit set under the Paris agreement – would require much stronger government action and new policies.
That could also help investors by pointing the way to deflation of the carbon bubble before they make new investments in fossil fuel assets.
The paper supports the view of some policy and investment experts that economics and technology are now driving action on climate change, where before impetus was all from policymakers.
Former UN climate chief Christiana Figueres told the Guardian, a year after Donald Trump announced the withdrawal of the US from the Paris agreement: “There is a big difference between the economics of climate change and the politics of climate change. Is Trump going to stop that advance [by businesses towards low-carbon technologies]? I don’t think so.”
Frédéric Samama, of Europe’s biggest asset manager Amundi, also believes investors have reached a “tipping point”, in relation to taking action on greenhouse gases through their portfolio management. He told Bloomberg last month that “until recently, the question” of climate change was “not on their radar screen”.
Separately, an analysis in Nature Energy forecast that global energy demand would be about 40% lower than today by 2050, despite rises in population and income, and a growing global economy. The authors found that such a scenario would allow the world to stay within 1.5C of warming, the aspirational goal set under the Paris agreement.

Links

• What is the carbon bubble and what will happen if it bursts?
• Why a high-carbon investment bubble could be the lesser of evils
• Macroeconomic impact of stranded fossil fuel assets (pdf)
• IEA accused of undermining global shift from fossil fuels
• ‘Moore’s law’ for carbon would defeat global warming
• UK carbon emissions drop to lowest level since 19th century, study finds
• Global 'greening' has slowed rise of CO2 in the atmosphere, study finds
• Global carbon intensity falls as coal use declines
• Shell hits back at 'carbon bubble' claims
• 'Carbon bubble' poses serious threat to UK economy, MPs warn
• Al Gore: world is on brink of 'carbon bubble'

Limiting Global Warming To 2 Degrees Now 'Aspirational': Scientists

Fairfax - Peter Hannam

The chance of limiting human-induced global warming to less than 2 degrees is rapidly disappearing as carbon emissions again ramp up in China while reductions in the US and elsewhere stall, scientists say.
Data from the CSIRO's Global Carbon Project indicates greenhouse gas emissions in China accelerated to 1.5 per cent growth last year. China is now responsible for about a third of the world's carbon emissions.

China's emissions are again on the rise, making global climate targets even harder to meet. Photo: Reuters

"That was quite significant growth for China because we had seen almost three years of little or no increase," the project's director, Pep Canadell, told Fairfax Media.
Early indications are that 2018 could see an even larger rise, with China's carbon emissions in the first quarter jumping 4 per cent alone, according to a Greenpeace analysis.
2017's increase was partly caused by a revival of China's reliance on heavy industrial growth to prop up the economy, and a drop in hydro electric generation amid poor rainfall, Dr Canadell said.  This year's growth, though, is also being spurred by a pick-up in the global economy.

Dramatic surge in China carbon emissions

*2018 for first three months of the year. Source: Greenpeace

Given China's emissions are roughly double the next largest polluter - the US - and triple the European Union's, its acceleration means there is a fast-diminishing chance that the rise in global average temperatures can be restricted to the range of 1.5 to 2 degrees, as agreed at the 2015 Paris climate conference.
"Most climate scientists think 2 degrees [compared with pre-industrial levels] to be aspirational," said Andy Pitman, director of the ARC Centre of Excellence for Climate Extremes.
Even if emissions ceased globally, it is probable warming would still reach at least 1.5 degrees given the longevity of carbon-dioxide and other heat-trapping gases in the atmosphere, he said.
With increasing evidence of extreme weather events even at the roughly 1 degree of warming so far - including compounding risks of bushfires, heatwaves and droughts - societies can expect impacts to worsen, Professor Pitman said: "The notion that 1.5 degrees is somehow safe is totally incompatible with the evidence."

'Not a pretty picture'
News in recent days that the Trump administration plans to bolster the ailing US coal-fired power industry by intervening in markets would worsen the global emissions picture.
The CSIRO's Dr Canadell said while US carbon emissions had fallen for a decade, last year's decline will likely be much smaller because of quickening economic growth at home and abroad.
The European Union, too, was likely to register a slower emissions drop. Australia, meanwhile, is on course to increase its carbon pollution for a fourth year in a row, a "remarkable" result for a rich nation, he said.
"If you put all the blocks together, it's not coming together as a pretty picture for 2018," Dr Canadell said.

Recent annual falls in carbon emissions are slowing in the US and the EU. Photo: AP

Bill Hare, director of non-profit science think tank Climate Analytics, said the planet is currently on course for 3.4 degrees warming, although planned but as-yet unimplemented climate action could trim that to 3.1 degrees.
One cause for optimism includes the shift away from fossil fuels, which is speeding up because of tumbling prices for solar and wind.
"China is moving massively into renewables and electric vehicles, and despite some short term increase in coal use, this trend will continue," Mr Hare said.
Bruce Nilles, a former head of the Sierra Club's "Beyond Coal" campaign, who is visiting Australia, said President Trump's "brazen efforts" to help coal in US would likely be stymied by a flurry of lawsuits from other energy suppliers.
The US had seen 266 coal-fired power plants shut or set closure dates since 2010, and these "were continuing at the same rate as during the last few years of the Obama administration", he said.
Filling the gap were more than 10,000 megawatts of new wind and solar capacity each year, a process likely to continue as their technology becomes even cheaper, Mr Nilles said.

Links

• Global Carbon Project
• Dramatic surge in China carbon emissions signals climate danger
• ARC Centre of Excellence for Climate Extremes
• Future climate risk from compound events
• Climate Analytics
• Sierra Club