The Carbon Bubble

Will fossil fuel ‘stranded assets’ cause the next GFC?

How should investors be responding to this issue? What can managers and shareholders of fossil fuel companies do in the face of this threat? And what can governments and policy makers do to avoid or reduce the impacts?

COSM presented a public forum in partnership with the Asia Pacific Social Impact Leadership Centre in November 2014. The panel discussion was moderated by Peter Ryan, Business Editor, ABC, and included:

Hon John Hewson, Asset Owners Disclosure Project
Professor Ross Garnaut, University of Melbourne
Jemma Green, Curtin University, formerly JP Morgan
Tony Wood, Energy Program Director, Grattan Institute

If coal, oil and gas companies are permitted to exploit all the resources they have currently discovered, the world's climate will warm well beyond the 2C limit that governments have agreed is necessary to avoid the worst effects of climate change. An HSBC study found that removing the resulting 'stranded assets' of these companies from the balance sheets of fossil fuel companies would halve their sharemarket value.

Aggregating these losses is in the realm of $20 trillion: a greater impact on global sharemarkets than the 2008 GFC. Reports by Citibank, Standard & Poors, Bloomberg, the Bank of England, Oxford University, London School of Economics and others support the seriousness of the carbon bubble threat. Meanwhile, the scientific evidence of climate change continues to pile up, the likelihood of a post-Kyoto global political agreement is increasing, and the divestment movement gathers momentum.