You are here: home   Blogs   The GOAT Blog   Will stricter emissions limits mean stranded assets for investors?
The GOAT Blog

Will stricter emissions limits mean stranded assets for investors?

Document Actions
Tip Jar Donation

Your donation supports independent non-profit journalism from High Country News.

Tay Wiles | Nov 02, 2013 12:25 PM

Forty-five of the world’s top oil and gas producers received a letter, released at the end of October, that must have come as something of a wake-up call. Seventy investors that control a total of $3 trillion of those companies’ assets sent off the missive with one question in mind: What’s going to happen to our investments, once restrictions on green house gas emissions tighten?

“As long-term investors, we see the world moving toward a low-carbon future, in which fossil fuel reserves that companies continue to develop may actually become a liability, which could take a toll on shareholder value,” said Jack Ehnes, CEO of California State Teachers’ Retirement System. CalSTERS is one of the country’s two largest pension funds – both of which signed the letter.

A report put out by the Carbon Tracker Initiative, the group leading the 70 investors’ inquiry, partnered with the Grantham Institute for Climate Change, paints a grim picture of the future of fossil fuels. Granted, it’s any environmental advocacy group’s aim to make polluting the planet look like a raw deal, but one of the report’s more telling figures is that as much as 80 percent of coal, oil and gas reserves of publicly listed companies are already a liability. In 2012, 200 of the world’s biggest publicly traded fossil fuel companies forked out about $674 billion to find new reserves. Yet most of those could become “unburnable,” the report says.

The 2010 agreement that came out of the United Nations Climate Change Conference in Cancun aims to keep global temperature rise to less than 3.6 degrees Fahrenheit, which would mean only 20 percent of fossil fuel reserves could be used between now and 2050. Research cited in the Carbon Tracker report indicates that to have an 80 percent chance of reaching the goal, the world’s carbon budget for the second half of this century would need to be equivalent to only two years at current emissions levels. That means two-thirds of reserves would be stranded. Citing analysis from HSBC he report reads:

“The bonds of fossil fuel companies could also be vulnerable to ratings downgrades ... Such downgrades would result in companies paying higher rates to borrow capital, or if the rating drops below investment grade they could struggle to refinance their debt” (which is $1.5 trillion for the 200 companies profiled in the report).

copy_of_image.jpg
Image from Carbon Tracker’s April 2013 Unburnable Carbon report.

Without a major change in policy, however, the investors may not need to worry. Emissions regulations are a slow moving train, and the carbon market in the U.S. is only stumbling forward, with just the West Coast hosting involuntary credits markets, after a 2010 national push failed in the U.S. Senate. But President Obama’s June climate speech, plus U.S. Environmental Protection Agency Director Gina McCarthy’s September announcements to propose stricter emissions limits on power plants, have sparked conversation about the role of fossil fuel in our nation’s energy mix, making the possibility of stranded assets that much more poignant.

But if a crowd of Western politicians get their way, the investors won’t have to worry at all: We’ll go on burning fossil fuels until the sky falls.  How well do you know your politicians? Test yourself by matching up the climate denier with the climate denial.

Match these representatives: Rep. Mark Amodei, R-NV, Congressman Chris Stewart, R-UT, Senator Mike Crapo, R-ID, and a spokesperson for Rep. Darell Issa, R-CA, with the following quotations.

  1. “While there is no dispute over the fact that the Earth’s climate has changed many times over the planet’s history, the underlying cause of these climactic shifts is ultimately not well-understood and is a matter of vigorous debate.”
  2. “I’m not as convinced as a lot of people are that man-made climate change is the threat they think it is. I think it is probably not as immediate as some people do.”
  3. “I recognize that some scientists believe that global warming is caused by failed environmental practices; however, others argue that these temperature increases would incur regardless due to the warming of the center of the earth. I do not believe it is appropriate for the federal government to advocate one position or the other.”
  4. “This political gathering isn’t being done to support science, it is being staged by barackobama.com and is intended to promote President Obama’s radical campaign to raise energy costs that will kill Americans jobs.”

 

Tay Wiles is the online editor of High Country News. She Tweets @taywiles.

Answers: (1) Rep. Mark Amodei, R-NV. (2) Congressman Chris Stewart, R-UT, chairman of the House Science, Space and Technology Committee. (3) Senator Mike Crapo, R-ID. (4) Spokesperson for Rep. Darell Issa, R-CA, who received a “climate change denier award” from environmentalists in August.

Malcolm McMichael
Malcolm McMichael
Nov 05, 2013 07:36 PM
One man's stranded investment is another man's losing bet.

I am not a big fan of the term "stranded assets"; its passive language seems to absolve investors of their responsibility for backing a losing proposition. The term implies that the losing wager is inherently worthy of being rescued; like a dog on a floating ice floe.

I am doubly uncomfortable with the term, because its recent emergence bears the unmistakable scent of industry PR looking for a cause celebre to justify further unrestrained burning of fossil fuels.

There is, nonetheless, for those interested in nuance, an interesting discussion to be had about investments made in plant improvements and gas conversions, under good faith ideas about better efficiency (not unlike, say, the investments the Feds made in Solyndra). Alas. Ya win some, ya lose some.

As for coal stack scrubbers and the like, in hindsight, perhaps investing in making better buggy whips was not such a great idea. In any case, that nuance is not what we are talking about here.
Malcolm McMichael
Malcolm McMichael
Nov 06, 2013 05:54 AM
On further research, I have come to recognize that the term in this case seems to have originated initially from climate change economic researchers, exploring the impacts of a divestment campaign (as the author above indeed implied). In this case then, the usage is more a warning and less a call for rescue.

I have seen the passive term employed already, though, used in the latter context (i.e. as a justification for regulatory forbearance and continued malinvestment).

The history of "stranded" oil shale research efforts in the US should serve as a cautionary tale to all would-be investors who wish to get in on the declining side of the fossil fuel era. Thanks to the efforts of these climate change economists, now you have been warned.

The natural course of events is heading somewhere new and uncharted. The only question is how bumpy will be the ride? Which investments in the past get stranded, and which move us forward?

Email Newsletter

The West in your Inbox

Follow Us

Follow us on Facebook! Follow us on Twitter! Follow our RSS feeds!
  1. Rancher vs BLM: a 20-year standoff ends with tense roundup |
  2. Photos of a standoff | Armed militia members join a Nevada rancher to pro...
  3. After the standoff, what's next for Bundy and BLM? |
  4. The energy haves and have-nots | Will rooftop solar owners get off the grid — and...
  5. Why homes are lost to wildfire | This Forest Service expert says it's as much a soc...
  1. Why homes are lost to wildfire | This Forest Service expert says it's as much a soc...
  2. Photos of a standoff | Armed militia members join a Nevada rancher to pro...
  3. The energy haves and have-nots | Will rooftop solar owners get off the grid — and...
  4. Will the Colorado River reach the Gulf of California once more? | Photographs of last month's historic water pulses....
  5. Locals resist a Bakkenization of the Beartooths | South-central Montanans oppose new drilling, forew...
 
© 2014 High Country News, all rights reserved. | privacy policy | terms of use | powered by Plone