Friday, January 20, 2012

Is the carbon bubble next to burst?

The Guardian has an interesting story today about an open letter to the governor of the Bank of England, Mervyn King. It has been signed by environmentalist groups, renewable energy representatives, politicians, academics, etc. See the letter here. The letter asks King to carefully consider the consequences of continuous institutional investment in fossil fuels. The signatories express concern that market reactions would not be swift enough should a depreciation of fossil fuel based companies occur. It is a call to improve the investment climate for renewable energy businesses to avoid 'systemic risk' which could stem from a crisis of fossil fuels.

In the Guardian story some additional information is presented to draw the parallel to the housing bubble and financial crisis. It states that international climate negotiations and the 2 degree limit would cause this to happen:
But meeting this limit would mean just 20% of existing fossil fuel reserves could be burned, according to recent research.
To me, it seems implausible to expect a climate treaty any time soon that would lead to a situation where we leave 80% of fossil fuels untouched, especially given the high prices and profitability of oil, the dash for shale gas, the resurrection of coal power plants in Germany and elsewhere, etc. I am not sure if the spin in the Guardian story helps the effort to redirect long term investment, as stated in the letter. Relying on wishful thinking and scaring people will not work. After all, there is a different conclusion Sir Melwyn might draw: if  such a systemic risk exists, better protect fossil fuel interests. 

1 comment:

sien said...

The letter is surely to be ignored.

A more probable scenario is that insolvent EU countries simply ignore EU climate rules causing the EU, which is the largest place for renewable investment, to fail leaving many low C02 emitting energy sources in the hands of companies that are doomed.

In the US subsidies that kept companies like Solyndra afloat are quite likely to be cut as well in efforts to trim the US budget deficit and because a Republican Congress will veto any more funding.

Who would bet that over the next 10 years low C02 emitting technology companies outperform oil companies?