Thursday, January 19, 2012

Don't Get Caught Holding the Bag on Fossil Fuels

The expected global drive to curb carbon emissions could create a fossil fuel bubble collapse.   A coalition of prominent UK investors, politicians and scientists has warned the Bank of England that massive reserves of coal, oil and gas could turn into sub-prime assets.

In an open letter on Thursday, they tell [Sir Mervyn] King that the global drive to reduce carbon emissions could mean billions of pounds of fossil fuel reserves will rapidly lose value and cause a "major problem" for institutional investors and pension funds.

At the most recent UN climate change summit in December, 194 of the world's nations agreed to enact legally binding curbs on greenhouse gas emissions within three years to limit global warming to 2C. But meeting this limit would mean just 20% of existing fossil fuel reserves could be burned, according to recent research.

"These high-carbon assets pose significant strategic challenges for the future prosperity of Britain that just can't be ignored," said investment manager James Cameron, who is a member of the prime minister's business advisory group. "Investors continue to pour cash into unsustainable assets without understanding the risks associated with these investments, such as climate change,  local pollution, fossil fuel price volatility, political risk  and catastrophes such as Deepwater Horizon."

The letter is also signed by the government's former chief scientific adviser Sir David King, Zac Goldsmith MP, former environment minister John Gummer and 17 others. It urges action to investigate the risk of the "carbon bubble".

If they're right and we are headed for a "carbon bubble" what would that mean for the world's filthiest - and costliest - fossil fuel, Athabasca bitumen?   Should our federal and provincial governments be pouring unknown billions of dollars in subsidies into potentially worthless, not to mention destructive, assets?  Also, if Athabasca is poised to be one of the first fossil fuel ventures to fail in a carbon bubble collapse, how are we going to force Big Oil to live up to its promises to clean up its massive, highly toxic mess and restore the Tar Sands to their natural state?

And, with this warning of a carbon bubble on the horizon, what are Big Oil and the Harper government doing plotting to build the Northern Gateway pipeline?

If the market goes south on fossil fuels, if bitumen turns into the ultimate energy sub-prime asset, the Athabasca Tar Sands would probably be the first and hardest hit.  It's always been an economic gamble envisioning a steadily increasing market price but the odds now seem to be worse than we'd counted on.


BTW, The Guardian has a very helpful look at energy subsidies today.


crf said...

Unfortunately, it sounds like this is more of a reason to get it out of the ground as quickly as possible, and sell it when the market is good.

The Mound of Sound said...

Hi Chris. Actually I was wondering if that idea is driving Harper's massive push to get the Northern Gateway up and running. The future of the Tar Sands is uncertain so let's make hay... The worrisome part is that hastening something like this invites as much corner cutting as one can get away with which is dangerous to British Columbia.