Are you risk averse... to the Carbon Bubble?

[waldo]

past MLW threads have provided the scientific basis for the emission mitigation target of a resultant 2°C above the pre-industrial temperature... notwithstanding strong (scientific based) opinions that the possibility of meeting the target has long passed given inabilities to secure required binding emission reduction targets.

those past MLW discussions highlighted the 2009 G8 acceptance of that target, the iterative COP climate conferences that progressively worked toward seeking commitments to that target, and the 2010-2011 Copenhagen/Cancun COP meetings where world governments committed to the 2°C target... with binding emission reduction commitments to be ultimately 'flushed out' and accepted at the 2015 COP conference.

within the UK Parliament, the Environmental Audit Committee (EAC) is tasked, "to consider to what extent the policies and programmes of UK government departments and non-departmental public bodies contribute to environmental protection and sustainable development... to audit their performance against established targets and to report accordingly to the UK House of Commons". To that end, the EAC has just released its latest report:

Increasing investment in low-carbon energy, and reducing investment in fossil fuels, depends on an unambiguous assessment by investors that the international community will produce a credible and significant commitment to reduce emissions in a timescale commensurate with the urgency needed for avoiding dangerous climate change. The Government needs to play a central role in agreeing ambitious and binding international commitments on tackling climate change, both in the EU and in the lead up to the UNFCCC conference in Paris in 2015. Domestically, the Government should announce immediately that following the advice from the Committee on Climate Change there is no rationale for any review of the Fourth Carbon Budget.

in order to realize and align with binding commitments, to avoid the most serious impacts of climate change, the UK EAC committee is highlighting that "much of the world's coal/oil will need to be left in the ground"..... and that, accordingly, "The world's financial markets could be creating a "Carbon Bubble" by over valuing the fossil fuel assets of large companies".

The UK Government and Bank of England must not be complacent about the risks of carbon exposure in the world economy. Financial stability could be threatened if shares in fossil fuel companies turn out to be overvalued because the bulk of their oil, coal and gas reserves cannot be burnt without further destabilising the climate

Those corporations that continue to invest in new fossil fuel exploration, new fossil fuel exploitation, are really in flagrant breach of their fiduciary duty because the science is abundantly clear that this is something we can no longer do

I think it is probably more analogous to sub-prime than to any sort of bubble, where you hold these assets, you think they are good, and suddenly it becomes clear that they are not. At that point, the readjustment, the rebalancing of portfolios and so on, feeds on itself as people undertake fire sales to rebalance and then that pushes down the market values even further below book values.

[Boges]

So what, should that start today?

It's pretty cold still. Gotta heat homes somehow if people insist on living places that get cold a portion of the year.

Do we have reasonable alternatives to fossil fuel that can be brought to market without causing massive poverty to people that can no longer afford a certain standard of living because of the lack of cheap power?

Does Nuclear power count for this as well?

Edited March 7, 2014 by Boges

[waldo]

@2013: the top 12 of the world's stock exchanges with the largest exposure to listed coal, oil and gas reserves (in GtCO2)

(Carbon Tracker/Grantham Research Institute)

[bush_cheney2004]

This is just more fun and games by the usual suspects. They have already lost the original battle on GHG emissions targets, so now its time to spook 'em where it counts....financials ! No matter, as the crisis in Ukraine has actually jump started sluggish efforts to ramp up fracking for shale gas in Europe, despite alarmist objections.

[TimG]

They have already lost the original battle on GHG emissions targets, so now its time to spook 'em where it counts....financials!

What is disgusting is these people honestly believe that pushing billions in poverty with high fuel prices is helping humanity. They seem to be getting their lessons in morality from the Spanish inquisitors. Edited March 7, 2014 by TimG

[Boges]

It's wealth distribution. They won't force people in the third world to stop using carbon. But in the developed world? Bleep em they caused the problem in the first place.

[waldo]

What is disgusting is these people honestly believe that pushing billions in poverty with high fuel prices is helping humanity. They seem to be getting their lessons in morality from the Spanish inquisitors.

it's well established that you're accepting to the corporate/pension risk

[bush_cheney2004]

Self imposed fossil fuel scarcity will actually have the opposite intended result.

[Moonlight Graham]

If there ever is a change to reduction in fossil fuel consumption I don't think it would be fast enough to create a financial bubble. Change would be slow to implement country to country and within countries I would imagine, slow enough for markets/investors to adjust without some sort of carbon crash.

Edited March 7, 2014 by Moonlight Graham

[Guest]

Right. I wouldn't worry about any financial bubble being caused by fossil fuels being left in the ground. I was recently in northern Alberta, where I saw a camp for workers being built. I asked if it was the camp to house the workers who were going to put together the new Shell project going on up there.

Apparently, it's the camp to house the workers who are going to build the camp to house the workers who are going to put together the new Shell project going on up there.

[waldo]

If there ever is a change to reduction in fossil fuel consumption I don't think it would be fast enough to create a financial bubble. Change would be slow to implement country to country and within countries I would imagine, slow enough for markets/investors to adjust without some sort of carbon crash.

yes - could be relative depending on the tightness of binding emission reduction commitments and related enforcement... or, in line with your suggestion, the previous quoted assessment... more analogous to sub-prime:

I think it is probably more analogous to sub-prime than to any sort of bubble, where you hold these assets, you think they are good, and suddenly it becomes clear that they are not. At that point, the readjustment, the rebalancing of portfolios and so on, feeds on itself as people undertake fire sales to rebalance and then that pushes down the market values even further below book values.

[Boges]

Imagine what doing that would do to the value of the Canadian dollar? It would be competitive with the Peso.

[waldo]

... a valuation contradiction: Existing company valuations are based on the assumption that all fossil-fuel reserves can be burned... if you can't support/meet that assumption, if 'x'% of those reserves must be left in the ground to support binding emission reduction commitments, to avoid the most serious of climate change impact, then the valuation of those companies is suspect/wrong:

Smart investors can see that investing in companies that rely solely or heavily on constantly replenishing reserves of fossil fuels is becoming a very risky decision... raising serious questions as to the ability of the financial system to act on industry-wide long term risk, since currently the only measure of risk is performance against industry benchmarks

[bush_cheney2004]

...Apparently, it's the camp to house the workers who are going to build the camp to house the workers who are going to put together the new Shell project going on up there.

Roger that...same thing is happening in North Dakota. It's growing so fast they don't even have enough prostitutes or drug dealers. The climate change alarmists and warmies are just making more of the same noise while more fossil fuel development proceeds at breakneck speed.

Edited March 7, 2014 by bush_cheney2004

[Guest]

Roger that...same thing is happening in North Dakota. It's growing so fast they don't even have enough prostitutes or drug dealers. The climate change alarmists and warmies are just making more of the same noise while more fossil fuel development proceeds at breakneck speed.

That was the first thing I said to my buddy at the time. If I was a hooker, I know where I'd be heading...

[GostHacked]

So what, should that start today?

It's pretty cold still. Gotta heat homes somehow if people insist on living places that get cold a portion of the year.

Do we have reasonable alternatives to fossil fuel that can be brought to market without causing massive poverty to people that can no longer afford a certain standard of living because of the lack of cheap power?

What is to say there will be a market? And every thing that has been handed to us in terms of conserving power has also conserved money for people. But then the prices got hiked up.

Does Nuclear power count for this as well?

We have alternatives, but I see it as a control thing as to why these technologies are not being pursued with intensity.

The money, the brainpower and the pace of technology is not being used very wisely.

Nuclear is the best option we have to produce the amount of electricity we demand. But some of the demand is absolutely frivolous, meaning not really necessary. Instead of devising every single item to use power, a mechanical device that has done the job well for years should be more than enough.

[waldo]

That was the first thing I said to my buddy at the time. If I was a hooker, I know where I'd be heading...

guys, guys... that's right! Upcoming world government's binding emission reduction commitments, banks/insurance companies/pensions/etc. exposure and one's accompanying risk aversion to portfolio dependency on fossil fuels rests, quite literally, on the backs of your referenced hookers. That's deep analysis guys, really deep.

.

[Guest]

guys, guys... that's right! Upcoming world government's binding emission reduction commitments, banks/insurance companies/pensions/etc. exposure and one's accompanying risk aversion to portfolio dependency on fossil fuels rests, quite literally, on the backs of your referenced hookers. That's deep analysis guys, really deep.

.

Just considering a career change. Nothing wrong with that.

[On Guard for Thee]

Roger that...same thing is happening in North Dakota. It's growing so fast they don't even have enough prostitutes or drug dealers. The climate change alarmists and warmies are just making more of the same noise while more fossil fuel development proceeds at breakneck speed.

You gotta like BC's picture of the world: hookers, drug dealers, and settling ponds bursting their banks and flowing into the Athabasca, or maybe the Kalamazoo.

[CPCFTW]

If only there were risk management instruments which could hedge portfolio exposure to oil stocks.

[TimG]

If only there were risk management instruments which could hedge portfolio exposure to oil stocks.

There are plenty of people who are more than willing create financial products they can sell to the clueless with irrational fears. If a "hedge against oil stocks" is not available from your nearest snake oil salesmen it maybe because the market is not large enough.