Will stricter emissions limits mean stranded assets for investors?


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).

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.

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