How Investments in Fossil Fuels Could Trigger a 'Carbon Bubble' that Would Crash the World Economy
December 3, 2014
Damian Carrington / The Guardian & Energy Marketprice.com
The Bank of England is concerned that the fossil fuel industry could cause a major economic crash if future climate change rules render their coal, oil and gas assets worthless. The fear of a "carbon bubble" has gained traction since 2013, and is being taken seriously by major financial companies including Citi bank, HSBC and Moody's, but the Bank of England's enquiry is the most significant endorsement yet from a regulator. Meanwhile, Scotland's renewable economy has out-performed nuclear.
Bank of England Investigating Risk of 'Carbon Bubble'
Damian Carrington / The Guardian
LODON (December 1, 2014) -- The Bank of England is to conduct an enquiry into the risk of fossil fuel companies causing a major economic crash if future climate change rules render their coal, oil and gas assets worthless.
The concept of a "carbon bubble" has gained rapid recognition since 2013, and is being taken increasingly seriously by some major financial companies including Citi bank, HSBC and Moody's, but the Bank's enquiry is the most significant endorsement yet from a regulator.
The concern is that if the world's government's meet their agreed target of limiting global warming to 2C by cutting carbon emissions, then about two-thirds of proven coal, oil and gas reserves cannot be burned. With fossil fuel companies being among the largest in the world, sharp losses in their value could prompt a new economic crisis.
Mark Carney, the bank's governor, revealed the enquiry in a letter to the House of Commons environment audit committee (EAC), which is conducting its own enquiry. He said there had been an initial discussion within the bank on "stranded" fossil fuel assets.
"In light of these discussions, we will be deepening and widening our enquiry into the topic," he said, involving the financial policy committee which is tasked with identifying systemic economic risks. Carney had raised the issue at a World Bank seminar in October.
News of the Bank's enquiry comes on the day that global negotiations on climate change action open in Lima, Peru, and as one of Europe's major energy companies E.ON announced it was to hive off its fossil fuel business to focus on renewables and networks.
The UN's Intergovernmental Panel on Climate Change recently warned that the limit of carbon emissions consistent with 2C of warming was approaching and that renewable energy must be at least tripled.
"Policy makers and now central banks are waking up to the fact that much of the world's oil, coal and gas reserves will have to remain in the ground unless carbon capture and storage technologies can be developed more rapidly," said Joan Walley MP, who chairs the EAC. "It's time investors recognised this as well and factored political action on climate change into their decisions on fossil fuel investments," she told the Financial Times.
Anthony Hobley, chief executive of thinktank Carbon Tracker which has been prominent in analysing the carbon bubble, said the bank's latest move could lead to important changes.
"Fossil fuel companies should be disclosing how many carbon emissions are locked up in their reserves," he said. "At the moment there is no consistency in reporting so it's difficult for investors to make informed decisions."
Both ExxonMobil and Shell said earlier in 2014 that they did not believe their fossil fuel reserves would become stranded. In May, Carbon Tracker reported that over $1 trillion is currently being gambled on high-cost oil projects that will never see a return if the world's governments fulfill their climate change pledges.
Renewable Energy Beats Nuclear
As Scotland's Main Power Source
EDINBURGH (December 1, 2014) -- Renewable energy in Scotland from wind farms, hydro power plants and other green sources has exceeded nuclear, becoming the top source of electricity in the nation in the first months of 2014, according to figures from the Department of Energy and Climate Change (DECC).
The figures show that renewable energy sources generated 32 percent more electricity than any other single source in the first half of this year. The electricity produced by green energy sources hit a record of 10.4 terawatt-hours of electricity, against 7.8TWh from nuclear, 5.6TWh from coal and 1.4TWh from gas-fired power stations during the same period of time.
Onshore wind and hydropower are indisputable leaders in Scotland's renewable energy mix, but there is significant growth potential in offshore wind, tidal and solar power. Wind turbines in Scotland alone generated enough power to supply three million homes in the UK, equivalent to 126% of the electricity needs of every home north of the border.
In October, the Scottish Government gave the green light for 500 wind turbines spread across four offshore wind farms in the Forth and Tay region. The announcement is seen as "historic" for Scotland and represents an important step towards Scottish objective to become 100% green by 2020.
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