October 02, 2015 11:51 AM UTC

The Carbon Bubble is Here. Will We Just Let It POP! ?

• 5 Comments
• by: PKolbenschlag

(Promoted by Colorado Pols)

The news from the North Fork Valley in western Colorado hit hard.  Again.  Another 80 hard-working men and women at the Bowie Resources coal mine will be laid off.  And although coal company executives, industry PR types, and their compensated politicians might like to point fingers at Obama, environmentalists and a ‘war on coal,’ the writing is on the wall.

Coal is in decline, and not just in the United States. And its not only coal. The big news on the drilling front last week was Shell pulling out of the Arctic.  Which is, again, not the only news troubling oil and gas investors.

What were recently ‘boom towns’ are now becoming ghost towns – in the Bakken and elsewhere as the fracking, unconventional energy, and shale industries rapidly contract.  More Halliburton layoffs in Grand Junction, Chesapeake laying off workers nationwide, jobs rapidly disappearing in Weld County, at the edge of the eastern Colorado plains and just recently ground zero for the Niobrara’s brief boom.

Here is the reality, looming large across all fossil fuel markets and regions: There is a “Carbon Bubble” that more and more economists, market analysts, and investors are warning about.

Among the latest sounding the alarm bells is the UK’s central banker, addressing the global insurance company Lloyd’s of London, as reported in the International Business Times:

The head of the Bank of England took a step few other central bankers have yet taken. He acknowledged climate change.

In a speech this week, Mark Carney, the Bank of England governor, said fossil fuel investments could impose “potentially huge” losses to investors as carbon assets become increasingly off-limits in a world attempting to stem catastrophic climate change.

Carney’s comments came on the occasion of the Bank of England’s first report examining the financial implications of climate change, which described how a heating world with rising oceans could wreak havoc on British insurers.

…

“Once climate change becomes a defining issue for financial stability, it may already be too late,” Carney was quoted saying in the Financial Times.

The issue is hardly relegated to the U.K. According to the British environmental group Carbon Tracker, which has pushed central banks to grapple with the issue, nearly 10 percent of the New York Stock Exchange’s $18 trillion market capitalization is tied up in fossil fuel companies, which would almost certainly take a hit in a stranded-asset scenario.

The issue worrying investors is that given the reality of climate change and the increasing costs borne broadly across all sectors of the economy from its impacts, already felt and only predicted to rapidly escalate, is the high likelihood of  ‘stranded investments’ in the already heavily leveraged fossil fuel economy, as Bloomberg reports:

In a stunning analysis this week, Goldman Sachs found almost $1 trillion in investments in future oil projects at risk. They looked at 400 of the world’s largest new oil and gas fields — excluding U.S. shale — and found projects representing $930 billion of future investment that are no longer profitable with Brent crude at $70. In the U.S., the shale-oil party isn’t over yet, but zombies are beginning to crash it.

To put it in the terms of an older wisdom: Eventually we will have to pay the piper.

Climate change is real and it is impacting us now.

The looming calamities made worse by the climate crisis are not just measured in their environmental and human costs.  Increasingly they pose a very real threat to global investments.

A growing minority of investors and regulators are probing the possibility that untapped deposits of oil, gas and coal — valued at trillions of dollars globally — could become stranded assets as governments adopt stricter climate change policies.

The concept gaining traction from Wall Street to the City of London is simple. Limits on emissions of carbon dioxide will be necessary to hold temperature increases to 2 degrees Celsius, the maximum climate scientists say is advisable. Without technologies to capture the waste gases from combusting fossil fuels, a majority of known oil, gas and coal deposits would have to stay underground. Once that point is reached, they become stranded.

With representatives from more than 190 countries gathered to discuss climate rules in Lima, the argument that burning all the world’s known oil, gas and coal reserves would overwhelm the atmosphere is moving beyond the realm of environmental activists.

Ofttimes after a bubble bursts we recall the “growing minority”  that were pointing to the approaching cliff. But it is too late afterwards, as we survey the insensible height off which we have crashed … from the wreckage below.

As the central banker noted before the world’s preeminent insurers, from the IBT:

“Once climate change becomes a defining issue for financial stability, it may already be too late,” Carney was quoted saying in the Financial Times.

We Must Act on Climate.

One noteworthy feature of most market bubbles is that a majority of insider-analysts “never saw it coming.”  Many are quick to dismiss the naysayers in patronizing or pejorative fashion, as out of their league or talking out of turn, as one critic opined in the Telegraph:

Mr Carney made much in his speech of the idea – hatched by the UN sponsored Intergovernmental Panel on Climate Change – that up to a third of the world’s proven oil, gas and coal reserves would have to be left in the ground, or “stranded”, if the rise in global temperatures is to be limited to the prescribed 2 degrees.

What is he doing lending credence to such a tenuous concept?

It is not surprising, perhaps, that those enjoying the bubble most are least likely to see it as an issue.

But it may be wise to listen to contrarians all the more so in that case, especially those whose role it is is to look at longer term trends and possibilities, as Bloomberg Business News editorialized:

Bank of England Governor Mark Carney startled some people this week, when he gave a speech drawing attention to the risks that climate change poses to financial stability. This isn’t a connection central-bank governors often make.

More’s the pity, because the connection is real.

Climate change implicates assets worth billions if not trillions of dollars. If governments fail to address the problem effectively, economic losses will steadily mount. For instance, owners of mortgaged houses in danger of flooding will face increasing financial stress; so will their lenders and insurers.

And with mounting evidence of the real costs levied by global climate change, we cannot wait for politicians to act either. After all too many are more interested in campaign donors, photo ops, and grandstanding.

Some make shockingly embarrassing claims, such as snow in the northern hemisphere during its winter is somehow proof that dumping hundreds of tons of known greenhouse gases into the Earth’s incredibly thin atmosphere is inconsequential. Others might try to weasel around the question or claim to be unable to answer, almost as if it were unintelligible.

We must, as a world, begin to put real and tangible prices on the carbon pollution being emitted copiously into our planet’s environment—to make sure that externalities are brought into the bottom-line of each and every polluting industry.

And now, on the road to Paris, the already flimsy argument that the other key nations—particularly China and India—are unwilling to address their emissions and therefore America should not be expected to lead, is collapsing.

So just as important as putting a real cost on carbon pollution, we must also put a price on climate change denial.

We must hold politicians accountable for their gross misconduct, for their fiddling as the globe heats up and burns, trading leadership and responsibility for campaign funds and favor.

The Carbon Bubble is here.  The question is only this: Will we let it go POP! …bursting all at once and causing even more harm and economic woe to Americans and people everywhere?

Or will we instead begin to more thoughtfully deflate it by taking meaningful action now?