Sunday, February 10, 2013

Canada's Sub-Prime Disaster Waiting in Harper's Wings

One sector known for being a holdout on climate change is the financial community.   Some of the most outlandish denialist journalism has come (and too often still does) from once credible outlets such as the Wall Street Journal and Financial Post.

But now they're being overtaken by reality.  Denialism, no matter how loud and influential and constant, cannot stop the steady advance of climate change and that makes it ultimately self-defeating.   The flat-earthers learned that in their day.  Wishful thinking and denialism are losing strategies.

A new day may be upon us as even the Financial Times seems to acknowledge the writing on the wall:

A new project has asked more than 1,000 of the world’s biggest asset owners to say what their exposure is to climate risks and what they are doing about it. 

Julian Poulter, executive director of the Asset Owners Disclosure Project, says it is becoming more important that institutions understand and disclose the impact that climate change could have  on their portfolios.

There is increasing certainty that climate change is happening and that its impacts are going to be profound. The International Energy Agency says that the world is on course for average temperature rises of at least 4C, not the 2C targeted by policy makers, adding that if we are to stay within the 2C target, two-thirds of fossil fuel reserves must remain in the ground.

“The year ahead will be dominated by growing tension between ever-stronger evidence of climate change and the inadequate policy response,” says Nick Robins, head of the climate change centre at HSBC. Awareness of the severity of climate impacts is likely to be further strengthened in September, when the Intergovernmental Panel on Climate Change (IPCC) publishes its fifth review of the science of climate change.

This implies that high-carbon assets will face increasing regulatory constraints and a growing risk of becoming stranded assets. Yet the average pension fund portfolio has 55 per cent of its assets invested in high-carbon sectors or sectors greatly exposed to climate change, Mr Poulter points out.

The range of sectors he highlights – such as oil and gas, energy, transport, manufacturing and the financing that funds these activities – gives a good idea of how affected most portfolios will be.

“As universal owners, they are exposed to the impacts of climate change in all regions, asset classes and industries,” he says.

The only realistic method for asset owners to manage climate risk is to hedge their portfolios – to invest in low-carbon assets so that when carbon is re-priced, either directly or indirectly, the destruction of value in their high-carbon investments is offset by an increase in value in their low-carbon investments.

The first step in this rebalancing of portfolios is for institutions to find out how exposed their current investments are, and then to tell people about it.

This is a significant leap for the sector, which has a tendency to be secretive. “There is a crisis of transparency in this industry,” Mr Poulter says.

Asset owners have never been put on the spot before.

And there, laid bare before you, is the folly of Stephen Harper and Canada's bitumen traffickers.   "...two-thirds of fossil fuel reserves must remain in the ground - the destruction of value in their high-carbon investments"   There it is, in a nutshell.

When business recognizes that two-thirds of fossil fuel reserves must remain in the ground that guts the value of the world's carbon-filthiest and most expensive petroleum resource, bitumen.   Investors are already waking up to the looming destruction of value in their high-carbon investments - bitumen or, more to the point, the companies that produce, refine and export the stuff.

Asset owners, i.e. investment funds, are now on the spot and they've never been put on this spot before.   They have to be realistic about the reality and impact of climate change not only on the environment but on the portfolio they're selling to their investors.   It's their asses on the line now.

There is a major campaign now underway to force academic institutions to divest holdings in high-carbon resources.   When the investment community follows suit, as it will, all the King's horses and all the King's men in Ottawa and Calgary and Edmonton will no longer be able to mask the reality that Athabasca bitumen is a horribly sub-prime asset on which they have been recklessly gambling the economy and fiscal stability of our country.

The fact that bitumen is unjustifiably expensive to produce and transport coupled with the fact that it's the highest-carbon variety of ersatz petroleum on the planet should be enough to persuade any rational, responsible leader to act prudently.   Add to that all the other factors - the tax deferrals; the subsidies and grants; the resources squandered on extraction including energy and water;  the ecological devastation, existing and potential;  the deferred (perhaps permanently) remediation; the carbon emissions associated with extraction, processing and transportation; the devastatingly overheated Alberta "boom and bust" economy; this may be the biggest and costliest blunder in Canadian history.

It's one thing for Stephen Harper to ignore reality.   He does that as a matter of course just as he ignored the alarms of the onrushing 2008 economic meltdown while ushering Canada toward U.S.-style casino capitalism.

It's another thing altogether for our Liberal and New Democrat leaders not to recognize the peril of our sub-prime Athabasca bitumen and it's cowardly of them not to stand up for the Canadian public and try to stop this from getting any worse than it already is.

Folly, sheer folly.

No comments: