Over the past couple of days I had few twitter exchanges about the term ‘carbon bubble’. These were triggered by a (rhetorical?) question from Maarten Hajer who asked: "'Carbon bubble' is quite a catchy new discourse. Can this language turn the tables?"
The reference was to this Guardian story, printed on the title page on Friday 19 April (Carbon bubble will plunge the world into another financial crisis).
It summarizes a report published by Lord Stern and the thinktank Carbon Tracker. It is worth mentioning the assumptions and assertions made by the report:
The so-called "carbon bubble" is the result of an over-valuation of oil, coal and gas reserves held by fossil fuel companies.
At least two-thirds of these reserves will have to remain underground if the world is to meet existing internationally agreed targets to avoid the threshold for "dangerous" climate change. If the agreements hold, these reserves will be in effect unburnable and so worthless – leading to massive market losses. But the stock markets are betting on countries' inaction on climate change.”
So the warning is that we will see a burst of the overvalued fossil fuels IF the international agreements will be implemented. This is a paradox and a somewhat off-putting political message. It makes us wonder what to prefer, a world with perhaps serious, dangerous long-term climate change, or a world with another certain financial collapse. If put in front of this dilemma, I am sure people will not think twice what to prefer. The political message of the metaphor seems to be defeatist.
The carbon bubble metaphor suggests that the ‘over-valuation’ of fossil fuels cannot go on because there is urgent political action looming. But how convincing is this argument? What we have seen in the past years was a bursting of renewable energy bubbles, and a dramatic fall in coal prices as a result of the production of cheap shale gas. Of course one might say, in the long run fossil fuels will be phased out and therefore no longer profitable. But this will happen only if and when cheaper low carbon technologies are introduced and markets make a transition. Current climate policies are toothless. Such a transition can take many forms depending on how well they are managed. True, financial and economic disruptions cannot be excluded in the transition and climate campaigners always knew this (or should have known).
In my reading the whole argument (and the metaphor) of carbon bubbles is based on wishful thinking. It wants to believe that the 2 degree goal will be somehow implemented and that therefore the fossil fuel companies and their assets will go bust. The bubble metaphor is supposed to convey a sense of alarm. Rhetoric as usual, from the usual suspects.
Yet, there may be a subtler message here. If the link between overvalued assets and serious climate policy exists, this means that the very climate policy might trigger a crisis if the transition into a low carbon economy is not well managed. And in this sense the bubble talk has perhaps some merit. It indicates that effective climate policies may lead to economic disruption. And the hesitancy on part of policy makers with regard to such policies might be explained by this very possibility.