'Carbon bubble' coming that could wipe trillions from the global economy: study

June 4, 2018, University of Cambridge
Credit: CC0 Public Domain

Fossil fuel stocks have long been a safe financial bet. With the International Energy Agency projecting price rises until 2040, and governments prevaricating or rowing back on the Paris Agreement, investor confidence is set to remain high.

However, new research suggests that the momentum behind technological change in the global power and transportation sectors will lead to a dramatic decline in demand for fossil fuels in the near future.

The study indicates that this will now happen regardless of apparent market certainty or the adoption of climate policies—or lack thereof—by major nations.

Detailed simulations produced by an international team of economists and policy experts show this fall in demand has the potential to leave vast reserves of fossil fuels as "stranded assets": abruptly shifting from high to low value sometime before 2035.

Such a sharp slump in fossil fuel price could cause a huge "carbon bubble" built on long-term investments to burst. According to the study, the equivalent of between one and four trillion US dollars could be wiped off the global economy in fossil fuel assets alone. A loss of US$0.25 trillion triggered the crash of 2008 by comparison.

Publishing their findings today in the journal Nature Climate Change, researchers from Cambridge University (UK), Radboud University (NL), the Open University (UK), Macau University, and Cambridge Econometrics, argue that there will be clear economic winners and losers as a consequence.

Japan, China and many EU nations currently rely on high-cost fossil fuel imports to meet energy needs. They could see national expenditure fall and—with the right investment in low-carbon technologies—a boost to Gross Domestic Product (GDP) as well as increased employment in sustainable industries.

However, major carbon exporters with relatively high production costs, such as Canada, the United States and Russia, would see domestic fossil fuel industries collapse. Researchers warn that losses will only be exacerbated if incumbent governments continue to neglect renewable energy in favour of carbon-intensive economies.

The study repeatedly ran simulations to gauge the outcomes of numerous combinations of global economic and environmental change. It is the first time that the evolution of low-carbon technologies has been mapped from historical data and incorporated into 'integrated assessment modeling'.

"Until now, observers mostly paid attention to the likely effectiveness of climate policies, but not to the ongoing and effectively irreversible technological transition," said Dr. Jean-Francois Mercure, study lead author from Radboud University and Cambridge University's Centre for Environment, Energy and Natural Resource Governance (C-EENRG).

Prof Jorge Viñuales, study co-author from Cambridge University and founder of C-EENRG, said: "Our analysis suggests that, contrary to investor expectations, the stranding of fossil fuels assets may happen even without new climate policies. This suggests a carbon bubble is forming and it is likely to burst."

"Individual nations cannot avoid the situation by ignoring the Paris Agreement or burying their heads in coal and tar sands," he said. "For too long, global climate policy has been seen as a prisoner's dilemma game, where some nations can do nothing and get a 'free ride' on the efforts of others. Our results show this is no longer the case."

However, one of the most alarming economic possibilities suggested by the study comes with a sudden push for climate policies—a 'two-degree target' scenario—combined with declines in fossil fuel demand but continued levels of production. This could see an initial US$4 trillion of fossil fuel assets vanish off the balance sheets.

"If we are to defuse this time-bomb in the global economy, we need to move promptly but cautiously," said Hector Pollitt, study co-author from Cambridge Econometrics and C-EENRG. "The carbon bubble must be deflated before it becomes too big, but progress must also be carefully managed."

One of the factors that may contribute to the tumult created by fossil fuel asset stranding is what's known as a "sell-out" by OPEC (Organisation of the Petroleum Exporting Countries) nations in the Middle East.

"If OPEC nations maintain production levels as prices drop, they will crowd out the market," said Pollitt. "OPEC nations will be the only ones able to produce fossil fuels at the low costs required, and exporters such as the US and Canada will be unable to compete."

Viñuales observes that China is poised to gain most from fossil fuel stranding. "China is already a world leader in renewable energy technologies, and needs to deploy them domestically to tackle dangerous levels of pollution. Additionally, stranding would take a higher toll on some of its main geopolitical competitors. China has a strong incentive to push for climate policies."

The study authors suggest that economic damage from adherence to fossil fuels may lead to political upheaval of the kind we are perhaps already seeing. "Mass unemployment from carbon-based industries could feed public disenchantment and populist politics," Viñuales said.

The authors argue that initial actions should include the diversifying of energy supplies as well as investment portfolios. "Divestment from fossil fuels is both a prudential and necessary thing to do," said Mercure. "Investment and pension funds need to evaluate how much of their money is in fossil fuel assets and reassess the risk they are taking."

"A useful step would be to expand financial disclosure requirements, making companies and financial managers reveal assets at risk from fossil fuel decline, so that it becomes reflected in asset prices," Mercure added.

Explore further: World-first study aims to keep emissions targets on track

More information: J.-F. Mercure et al, Macroeconomic impact of stranded fossil fuel assets, Nature Climate Change (2018). DOI: 10.1038/s41558-018-0182-1

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BobSage
4 / 5 (4) Jun 04, 2018
Not sure I understand the negative tone here: There will be less use of fossil fuel. Fuel prices will plummet. This is bad for the US economy. People will get unemployed.

I think I see: lower fuel prices and lower emissions are a bad thing.

Is that right?
PTTG
3 / 5 (6) Jun 04, 2018
It would be far better to transition peacefully and stably to a carbon-neural society with high employment, than to transition harshly to a depressed carbon-neutral society. Every environmentalist I've ever met has wanted the former and sought to avoid the latter. Now we can at least have a clear study to point to and use to argue that anti-renewables people aren't just against life in general, they oppose prosperity and success as well.

It is nice, at least, to see that fossil fuels are inevitably doomed.
baudrunner
not rated yet Jun 04, 2018
All that aside, cooks will still want to cook over a natural gas flame. Natural gas can be a pretty clean energy generator in a well-designed system.
ZoeBell
Jun 04, 2018
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ZoeBell
Jun 04, 2018
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antialias_physorg
4.2 / 5 (10) Jun 04, 2018
"Individual nations cannot avoid the situation by ignoring the Paris Agreement or burying their heads in coal and tar sands,"

Can we bury their heads in coal and tar sands? Please? Pretty please?

cooks will still want to cook over a natural gas flame.

They can cook with biogas just the same (because it's - chemically - the same thing). Or hydrogen flames if they really want to. You don't want the taste of the gas (or the various unhealthy components that are created during combustion) in your food, anyways - so hydrogen cookers would actually be optimal.
rrwillsj
2.1 / 5 (7) Jun 04, 2018
The carbon lobby attempting the same extortionate threats made recently by the nuclear priesthood in Germany.

"Keep shoveling all your money into our avaricious mouths or ELSE! If we loose our privileged dominance, we will take you all down with us!"
MR166
2.1 / 5 (7) Jun 04, 2018
""Keep shoveling all your money into our avaricious mouths or ELSE! If we loose our privileged dominance, we will take you all down with us!"

Yea, just the other day the head of Exxon put a gun to my head and said, "You had better fill er up son!"

NO ONE is being forced to use fossil fuels RR.
MR166
2.1 / 5 (7) Jun 04, 2018
It just amazes me how little the Green movement knows about markets and finances. If everything that they claim for renewables were true there would be 1000s of new companies going public raising trillions of dollars from more than willing investors. But that is not happening. Thus the claims are false at this point in time. When renewables become truly competitive with fossil the stock market will let you know.
TheGhostofOtto1923
3.4 / 5 (5) Jun 04, 2018
I cant imagine that this would happen all at once unless progressive govts return to power and enact draconian measures to mandate renewables.

Or hostile foreign govts collude to limit fossil fuel supplies to force collapse.

Same thing actually.
Steve 200mph Cruiz
3.7 / 5 (3) Jun 04, 2018
Bobsage,
Oil stocks fall when prices fall. A lot of retirement accounts and various investment firms are invested in fossil fuels, which is bad for the middle class (if it still exists) and rich people.

Most of the worlds easily accessible reserves have already been tapped, drilling and exploration costs are going up. If your product isn't worth the upfront investment costs, that's also bad for rich people. But it also means lost jobs and ghost towns that depend on the fossil economy.

I think people will use self driving electric cars 30 years from now, so cheap oil won't benefit consumers like it used to, and utilities just want the cheapest energy source, which renewables are starting to take the mantle of.
It's not the 20th century anymore.
Steve 200mph Cruiz
3.5 / 5 (8) Jun 04, 2018
The wind and solar power are the most unsustainable power sources in the world. Their industries consume more energy in their operations than they can ever produce with their monstrous turbines and toxic-chemical laced solar panels.


WRONG!
There's wind turbines that can power a house for over 24 hours with every single rotation.
New solar panels generate back their production costs in less than a year now and they generally last for more than 15 years. Every single solar panel generates enough power to create an entire house generation system over 15 years. Solar is great and self sufficient.
avandesande2000
not rated yet Jun 04, 2018
Event then it will be a slow transition measured in decades. As an example if you have outstanding bonds on a NG power plant you are paying off you will probably continue using the plant until it is worn out.

It just amazes me how little the Green movement knows about markets and finances. If everything that they claim for renewables were true there would be 1000s of new companies going public raising trillions of dollars from more than willing investors. But that is not happening. Thus the claims are false at this point in time. When renewables become truly competitive with fossil the stock market will let you know.

mrburns
3 / 5 (6) Jun 04, 2018
There is a constant propaganda campaign to get governments to subsidize renewable energy because renewable energy isnt economically competitive nor is it available consistently. This article is just more of that campaign. This article is a bit different because it isn't trying to scare people with fears that they will fry or drown. Instead it tries to scare people with investment losses.
ZoeBell
Jun 04, 2018
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ZoeBell
Jun 04, 2018
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Anonym819027
2 / 5 (4) Jun 05, 2018
Good riddance. I hope that will urge the people dismissing climate change as a conspiracy to re-consider investing in fossil fuels. Clean and renewable energy is the way forward and it would create more jobs than the fossil fuel industry ever could. California is proof of that!
tblakely1357
1.7 / 5 (6) Jun 05, 2018
Lol, California is rapidly turning into a third world hell hole and the middle class is fleeing to saner locals. The koolaid is strong in this one.
rrwillsj
2.3 / 5 (6) Jun 05, 2018
I wish all those refugees fleeing the hellhole of California would hurry up & get gone! Returning to their original midwestern cesspools that they have been fleeing from for better than a century.

If anyone of you have flown in a twin engine prop aircraft? East of the Sierra Nevada's, across the Rockies and Great Plains and over the Ohio Valley? You would notice endless miles of ghost towns, industrial ruins, abandoned ranches and farms as far as the eye can see from less than a mile up.

The altrightfairytail deniers are the little boy dared by his friends to walk across the local graveyard at midnight.

Whistling a quavery tune. Cause everybody knows whistling keeps the spooks at bay.

Noises from nightbirds panic him into start running. He stumbles over an old, fallen gravestone and breaks his fool neck.

At his funeral his friends agree how bravely he died.

You can all get together and sing the 'Horst Wessel Lied' in his honor. As you lied and lied and lied.
MR166
1 / 5 (4) Jun 05, 2018
" Returning to their original midwestern cesspools that they have been fleeing from for better than a century."

Yea RR the Midwest is known for its Religious, Family Oriented and Patriotic citizens. I can see why you hate it so much.

TheGhostofOtto1923
3.7 / 5 (3) Jun 05, 2018
If anyone of you have flown in a twin engine prop aircraft? East of the Sierra Nevada's, across the Rockies and Great Plains and over the Ohio Valley? You would notice endless miles of ghost towns, industrial ruins, abandoned ranches and farms as far as the eye can see from less than a mile up
Wachuu talkin bout willis???
https://www.youtu...jLVSapII
As you lied and lied and lied
...and lied. Ever watch an SR71 crash from the roof of a hangar in area 51? I bet you have...
Cusco
5 / 5 (4) Jun 05, 2018
Probably the wisest thing the Shah of Iran ever said was in reply to why they wanted nuclear power plants, "Oil is to valuable to burn." (Possibly the only wise thing.) Look around the room where you are. Is there **anything** that isn't made with petroleum? Probably not.

Plastics, coatings, dies, medicines, fertilizers, pesticides, etc. etc. ad infinitum. We won't run out of uses for fossil carbon products for a long, long time, even if we do manage to get away from using them for fuels.
rrwillsj
3 / 5 (6) Jun 05, 2018
MR666, deluding yourself that any of you altright fairytails are ....Religious, Family Oriented and Patriotic citizens....?

You are confusing that barstool you've been glued to since you flunked high school with real life. Those fellow boozehounds that share your miserable existence? In your stupor, you are confusing them for the leaders of your community.

As the quote paraphrases: "Sitting in a church and calling yourself a Christian is as logical as sitting in a garage and calling yourself an automobile!"

When any of you quislings and copperheads actually practice the religious dogma and patriotic slogans you loudly squawk about? Then the rest of us can reevaluate continuing to mock your pathetic pretensions.
MR166
1 / 5 (3) Jun 05, 2018
Yup RR Scientific Atheism is the only true religion.
chemhaznet1
3 / 5 (2) Jun 06, 2018
OK so lets say 1 to 4 trillion USD of investment is lost due to oil prices dramatically changing (which they won't, this will change over a long period of time), do these people making the case for this study think 1 to 4 trillion USD just drops off the face of the planet or just, you know -- gets reinvested in something like renewables like investors and companies are already transitioning into?
Steve 200mph Cruiz
5 / 5 (3) Jun 06, 2018
Chemhaznet,
It does drop off the face of the earth. Stocks are about incurring a level of risk in exchange for the possibility of making some money in the future. You are buying a share of a companies assets and debt when you buy a stock, of the asset value drops, the value of the share drops and the money disappears.
There's nothing to reinvest. If you have 100 shares at $100 a piece, you have $10,000. If the share drops to $5, your $10,000 becomes a measly $500
rrwillsj
2 / 5 (4) Jun 06, 2018
S2mC, quite right up to the point of "Where the hell did my money go?" It is all a shell game. Fake money supply manipulated by insider trading at the Wall Street Casino.

The magically disappearing money went into the pockets of the boiler-room touts who swindled gullible you into buying the latest and greatest share offer. The brokers and their bankers skimming their fees from both ends of the same transactions. With under-the-table payouts to the always grasping congressmen and cooperative security regulators.

Adding insults to your injury? They all belong to the same fraternities and country clubs. Cause moral corruption is a wonderful thing to share with the "Right People"!
gkam
2.6 / 5 (5) Jun 06, 2018
" . . which means that for a long time to come the average electric vehicle will remain a largely fossil-fueled machine."

Which means you are ignorant of EV technology and benefits. We have two, a VW e-Golf and a Tesla Model S, P85. No maintenance. No oil changes or filters or leaks. No tuneups. No injectors, no pistons, no valves, no cams and chains and belts.

No emissions systems and no transmission at all. The motor has the same maintenance needs as the one in your refrigerator - none. No ICE-powered car I have ever seen can touch it for performance, and that performance costs 4 cents/mile for power. The VW costs us 3 cents/mile.

How much is your personal time off worth? Want to go get the oil changed? Go to the gas station, or get that needed tuneup? None needed with an EV, and you "fill up" at home at night for cents/mile.

That is what will sell the EV. Those of you who never even rode in one do not understand. But you will.

Think of me when you do.
howhot3
5 / 5 (3) Jun 07, 2018
There is a definite "Carbon Bubble" coming to the stock market sometime in the future. Fossil fuels just are not needed, their expensive to mine, expensive to transport and they need massive amounts of labor to keep functioning. As renewables take seed in the energy ecosystem, the economies of low cost, low maintenance renewable energy will dictate the direction of the markets.

Acknowledging the crisis of global warming is something that many analyst and corporate leaders already take into consideration when making their strategies, corporate actions and decisions. It's as simple as asking yourself; "would you build your own house on a flood plain?"
What if sea level rise was unstoppable? Would you invest in a plant on a coast line predicted to be underwater in 35 years?

There certainly are financial implications to global warming and a potential wake up call in the form of a bubble is not out of the realm of very real possibilities.
eachus
1 / 5 (2) Jun 07, 2018
Most of the worlds easily accessible reserves have already been tapped, drilling and exploration costs are going up.


Two incorrect statements in one sentence. We obviously don't know the amount of untapped oil and gas yet to be discovered. But we do know how many billion barrels are inaccessible due to various drilling bans, like the ban on fracking in New York. There are also plentiful supplies sitting in the ground which would require OPEC to raise prices by a few cents to become profitable. (Technically they could be produced economically at current prices, but the risk of changing prices keeps them in the ground.)

I probably should concede you the drilling costs, but I am used to thinking of them as a function of the number of rigs in use. (I'm an economist, I don't drill for oil.) But oil exploration costs? Most oil companies have decades of seismic exploration data. The extreme decrease in computer costs means that this data can be reanalyzed for pennies.
rrwillsj
1 / 5 (4) Jun 07, 2018
It is obvious that the carbon lobby shills and denialists are too cowardly to discuss the vast sums diverted by corrupt ideology steadily adding to national debt, to subsidize the US Military Forces.

Only a fraction of this diverted national capital goes to actually defend the American People. Most of it subsidizes the fraudulent wars we are fighting as sepoy troops for Saudi imperialism. Expanding the reach of Wahhabist religious tyranny.

We fight those endless wars for Riyadh. Taking the blame for atrocities committed in our ignorance. Which the Saudi Wahhabi's use in their propaganda.

Now the push on to initiate a new war that will only benefit the Saudis by crushing Shi'ite dreams of independence after fourteen hundred years of vicious Sunni domination.

In addition, benefiting Putin's axis of greed. To fulfill the Russian dream of gaining a port to the open ocean. Putin & the Saudis suckering Americans into ravaging Iran for the axis to profit at our cost.
ZoeBell
Jun 07, 2018
This comment has been removed by a moderator.
TheGhostofOtto1923
1 / 5 (1) Jun 07, 2018
crushing Shi'ite dreams of independence after fourteen hundred years of vicious Sunni domination
More bullshit.

"While there are distinct theological differences between Sunnis and Shias, the claim that these two groups have been in a perpetual state of war and animosity throughout their existence is an absurd falsehood."

"the overall narrative between them is vastly more of pluralism, tolerance and accommodation than of hard-wired conflict and animosity.

"For centuries, Sunnis and Shias (as well as Christians, Jews and other religious groups) have lived closely intertwined with one another to a degree without parallel elsewhere in the world."

-Conscientious posting involves more that just dropping trou and squatting you know.

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