The
Carbon Bubble: Unburnable Reserves, Stranded Assets
We've
known for some time, but latest data confirm what we knew: it no
longer makes sense to continue looking for fossil fuels, because we
won't even be able to use a large share of currently available
reserves, if avoiding catastrophic climate change is what we want.
Such a situation reduces the relevance of the Peak Oil debate and
concentrates our attention on something entirely different: on the
role of private energy companies, which continue to profit from
reserves they should not be able to extract, and on the desperate
need for governments to accept a binding agreement to drastically
curtail emissions.
If
from this moment forward the end of the century CO2-equivalent
concentrations in the atmosphere can be maintained in the 430–480ppm1
range, we will have a 66% chance of limiting global average
temperature increase to less than 2°C.
Above this 2ºC threshold, the climate change already taking place
could take on a much more sinister, irreversible character. And the
scientific community is in consensus on this2.
Let’s overlook for a moment that such probabilities sound a little
too much like flipping a coin, as that would imply being willing to
accept a 34% chance of the opposite scenario happening. Let’s also
forget for a moment the fact that more and more scientists are in
favor of establishing an even lower, “safer” threshold3.
Because, after all, what we already have in hand is an international
agreement signed in Cancun (Mexico) in 2010, in which the
international community affirms its intention to avoid exceeding
temperature increase by these 2°C
before the end of the century with respect to pre-industrial levels4.
The
University of San Diego (USA) has measured atmospheric CO2
concentrations at its Mauna Loa Observatory in Hawaii since 1958 (The
Keeling Curve)5.
On May 14, 2013, scientists at this research station recorded the
landmark figure of 400 ppm6
for the first time. And in April of this year, monthly atmospheric
CO2
concentrations7
were
already above this level for the entire northern hemisphere8.
The annual growth rate of the Keeling Curve has been approximately
2ppm each year averaged over the last decade.
It’s important to remember that there is a delay between the
increase in CO2
concentrations,
and the response in global temperatures: as a consequence of this
“catching up” to the CO2
humans
have already put out into the atmosphere, temperatures will continue
to rise for many years after atmospheric CO2
levels
stabilize.
The
Carbon Budget
The
above photo
brings
us to The Big Question: How much CO2
can we still release into the atmosphere before we cross the 2ºC
threshold at century’s end? Or to put it into economic terms: How
much do we have left in the Carbon Budget?
Climatologists
at the IPCC calculated
in fall of 2013 that this number is 3670 Gt9
of CO210
(to have a 66% chance of achieving the 2ºC target). And it seems
that, between the beginning of the industrial revolution and 2011, we
have already released a little over half (1890 Gt), which leaves a
remainder of 1780 Gt. According to the IPCC, the available budget
shrinks even further, to 1010 Gt, if we include the global warming
impact of other gases (methane, nitrous oxide, CFCs, etc.)11.
If we continue at the current emission rate of 30 Gt per year, we
will be able to continue emitting CO2
for only about the next 25-30 years.
However,
if we were to take into account all the CO2
stored in fossil fuel reserves which are currently known and proven
but have not been extracted, the emissions potential is one of 2860
Gt. Comparing these two numbers makes it clear that we cannot use all
the fossil fuels in reserve because this would suppose a release of
CO2
into the atmosphere that would go significantly over the budget. The
International Energy Agency (IEA) has already predicted in its 2012
report that in order to comply with climate change agreements, at
least two-thirds of the reserves would have to remain untouched
underground. 12.
To
put it simply: Not only do these numbers, in and of themselves,
serve to bench any political initiative to search for new fossil fuel
reserves —as in the case of shale gas in all of Europe, or offshore
drilling in the Canary Islands or the Mediterranean— they also
make the entire debate around Peak Oil moot.13
Although some authors try to deny its relevance, arguing that
technological innovation has the capacity to delay its arrival until
a very distant future, they would have to concur on the insanity of
continuing to rely on an energy source which, if we had any sense
left, we could not continue using. The first limiting factor in this
case does not appear to be coming from resources availability, but
from our possibilities to use them.
The
Numbers Agree
In
addition to the IPCC report, other studies have proposed similar
enough carbon budgets with
differing emission ranges depending on the probability of achieving
the 2ºC goal of the Cancun Agreements. For example, Carbon Tracker
and the Grantham Research Institute for Climate Change and the
Environment estimated in 2013 that we have a budget of 900 Gt of CO2
available from now until the middle of the century to have an 80%
chance of keeping average temperature increase under 2ºC, whereas we
could allow emissions of up to 1075 Gt of CO2
if we could settle for a 50% chance14
(See Table 1). This carbon budget assumes a scenario in which we are
able to achieve large reductions in the emissions of other greenhouse
gases, such as methane, compared with present-day levels. However if
we consider the most recent data on methane emissions, it doesn’t
look like we have much basis to feel optimistic15.
Table
1. Various CO2
budgets in relation to the probability of temperature increase.
Maximum temperature
increase
|
CO2 Budget
for 2013-204916
(Gt CO2) |
|
Probability
of no exceeding the given temperature threshold
(ºC) |
50%
|
80%
|
1.5
|
525
|
-
|
2.0
|
1075
|
900
|
2.5
|
1275
|
1125
|
3.0
|
1425
|
1275
|
Reformatted
table based on
http://carbontracker.live.kiln.it/Unburnable-Carbon-2-Web-Version.pdf
Looking
at such a tableau, it is quite tempting to beg
for a magical solution of some sort to appear from technological
innovation. As a matter of fact, the IEA indicates the Carbon Capture
and Sequestration (CCS) window is a way to avoid keeping these
reserves underground17.
Nevertheless, CCS projects don’t seem to hold much water18,
and even assuming the idealized scenario of CCS development suggested
by the IEA, the data indicate that they would only allow for an
additional 125 Gt of CO2
in the carbon budget19,
which does not substantially alter the general outlook.
Who’s
Got their Hands on All This CO2?
We
have counted
that if we were to burn all the presently known proved reserves
(1P),20
this would produce the release of 2860 Gt of CO2
into the atmosphere. This is enough to produce a global temperature
increase of 3 ºC. But who is it exactly that has these reserves?
The
most of the reserves are in the hands of governments. If we convert
reserves to CO2
emissions,
according to Carbon Tracker, only about 762Gt of the CO2
that potentially may be released is in the hands of private
companies. Even so, when compared with the total carbon budget of
900Gt of CO2
estimated
in this study, this number leaves very little margin for government
reserves if we assume private companies will burn their proved
reserves in their entirety.
Then,
in addition to
proven reserves, when we consider reserves industry expects to soon
be able to develop (2P reserves)21,
it becomes evident that total CO2
emissions in private ownership is greater still. If 2P reserves were
to be developed commercially in their entirety, CO2 emission
potential in private hands would double to 1541 Gt.
Consequently,
we could say that if the energy companies' current plans for fossil
fuel reserve use and development were to be carried out, the
CO2 that would be released as a result (1541Gt CO2)
would not only go over the budget for but a 50% chance of staying
within the 2ºC limit (1075Gt CO2),
it would also exceed the emission levels needed to produce a 3ºC
temperature increase. (1425Gt CO2)
(See Table 1). And this is predicated on the supposition that
governments, exercising good environmental stewardship, would leave
their share of reserves underground untouched.
The
Carbon Bubble
If
we were to distribute the total carbon budget among owners of proved
reserves proportionately, (governments and business), the businesses
would have "rights"
to release only about125-275 Gt of CO2
(about 20-40% their current potential–762 Gt–) It is worth
asking, with things appearing as they do, whether these companies'
investors know that 60-80% of gas, oil, and coal reserves in their
portfolios will never be able to be utilized. One might say that
there is a generalized lack of knowledge in financial markets
regarding the real value of energy companies; many important
financial products, such as pension plans, are "anchored"
to reserves which, from a logical standpoint, are unusable.22
The
short-term thinking that characterizes financial markets does not
take
into account the inherent risks of assets which, if we expect
existing environmental accords to be honored in practice, become
toxic or outdated when they lose their value23.
One tends to assume implicitly, based on past market performance,
that energy companies will continue to grow and sell fossil fuels
indefinitely, and that the capital obtained thereby will be used to
replace older reserves with newly discovered ones. The reserves are
still in the substratum but their value is already being sold on the
surface. An HSBC analysis suggests that the valuation of these assets
could fall by about 40-60% in a low-emissions policy scenario.
Consequently, investors have the threat of a carbon bubble looming
over them — a carbon bubble that will inevitably burst if CO2
emissions are really to be limited.
Some
reports suggest that by taking measures directed toward tighter
regulation and supervision of the markets, it would be possible to
gradually redirect the current course, relocating investor capital in
low-carbon assets24.
Some important cities, such as San Francisco, Seattle, and Vancouver,
whether out of financial prudence or political responsibility, have
begun to take steps to divest from fossil fuels25.
Nevertheless,
this does not seem to be the overall trend.
In 2012, gas and oil business spent $647 billion on new reserve
exploration and on the development of extraction technologies, and
the forecasts a total expense of $6 trillion over the next decade.26
Such a path leads directly in the opposite direction to making
progress toward renewable energy, US investment in which is down by
5% in 2013 compared to the previous year.27
Energy companies are acting as though they will be able to utilize
these reserves because there really isn't anything on the table that
would prevent them from doing so. The onus is on government to act in
accordance with scientific data and to initiate firm measures that
will lead to an urgent transition in energy, for which less and less
time is left with every passing day.
1
Parts per million.
2The
Physical Science Basis, AR5, WG1, IPCC 2013
http://www.ipcc.ch/report/ar5/wg1/
3“UN's
2C target will fail to avoid a climate disaster, scientists warn”,
The Guardian, 3 December 2013
http://www.theguardian.com/environment/2013/dec/03/un-2c-global-warming-climate-change
4The
Cancun Agreements (UN), 2010 http://cancun.unfccc.int/
6Heat-Trapping
Gas Passes Milestone, Raising Fears
http://www.nytimes.com/2013/05/11/science/earth/carbon-dioxide-level-passes-long-feared-milestone.html?pagewanted=all&_r=0
7
Here we are considering only CO2,
not CO2
equivalents. This is relevant because for an understanding of the
overall picture, we would have to add in the effect of other
greenhouse gases, such as methane, which is already and will become
an even greater factor in a scenario that opts to rely strongly on
Natural Gas (see 16).
8CO2
Concentrations Top 400 Parts Per Million throughout Northern
Hemisphere. World Meteorological Organization, May 26, 2014
http://www.wmo.int/pages/mediacentre/press_releases/pr_991_en.html
9Gt,
1 gigatonne = 1 billion tonnes
http://es.wikipedia.org/wiki/Gigat%C3%B3n
10The
Physical Science Basis, IPCC Working Group I Fifth Assessment
Report, Summary for Policymakers, p 27, September 2013
http://www.climatechange2013.org/images/report/WG1AR5_SPM_FINAL.pdf
11These
data come from a scientific estimate in which in a 2ºC increase
scenario, 0.4ºC would come from gases other than carbon dioxide,
leaving a 1.6ºC increase caused by CO2
contributions, which would correspond to 2900Gt of CO2.
12World
Energy Outlook 2012, Executive Summary International Energy Agency
http://www.iea.org/publications/freepublications/publication/English.pdf
13El
cénit del petróleo y de los combustibles fósiles y sus críticos.
Antonio García-Olivares, 2014
http://crashoil.blogspot.com.es/2014/03/realmente-es-inmimente-el-peak-oil.html
14Unburnable
carbon
2013:
Wasted capital and stranded assets,
Carbon Tracker Initiative and Grantham
Research Institute on Climate Change and the Environment, 2013
15More
and more studies indicate that real methane emissions, particularly
from Natural Gas production –on the rise because of fracking –,
are notably higher than estimated values, whilst the IPCC (see note
3) has simultaneously revised the warming potential of methane,
concluding that it, also is greater than previously thought.
For
more information, see: “El gas que ralentiza” Samuel
Martín-Sosa, Energías Renovables, junio 2014
16
It is important to stress that nearly the entirety of these
atmospheric CO2
emissions “should” occur during the first half of the century.
During the second half, according to the Carbon Tracker study, it
would be barely acceptable to release 75Gt of CO2
(if we desire to preserve an 80% chance of staying within the 2ºC
increase limit), which is equivalent to two years’ worth of
emissions at the current rate.
17World
Energy Outlook 2012, Resumen Ejecutivo, Agencia Internacional de la
Energía
http://www.iea.org/publications/freepublications/publication/Spanish.pdf
18The
Carbon Capture and Sequestration Adventure Comes to an End
http://www.ecologistasenaccion.es/article26251.html
19Carbon
Tracker 2013
20Proven
Reserves (1P) refers to those deposits for which the probability
that they can be profitably extracted is 90%. See: Shale Gas in
Spain, Jesús Garijo, Ecologista, 77
http://www.ecologistasenaccion.org/article26536.html#nb2-4
21Proven
and Probable Reserves (2P reserves): deposits for which the
probability that of profitable extraction is 50%. See: Shale Gas in
Spain, Jesús Garijo, Ecologista 77
http://www.ecologistasenaccion.org/article26536.html#nb2-4
22Unburnable
carbon: Rational Investment for sustainability, NEF, 2012
http://b.3cdn.net/nefoundation/4335af2e57cdeaefb7_2rm6b0e81.pdf
23
Investors scrutinize portfolio performance according to specific
parameters, without necessarily paying attention to the fundamental
value of an asset, which may be at risk in a low-carbon economy.
24Stranded
Carbon Assets. Why and how risks should be incorporated in
investment analysis. Generation Foundation, 2013
http://genfound.org/media/pdf-generation-foundation-stranded-carbon-assets-v1.pdf
26http://carbontracker.live.kiln.it/Unburnable-Carbon-2-Web-Version.pdf
27Fracking
Absorbs Investment for Renewable Energy in the USA
http://fractura-hidraulica.blogspot.com.es/2014/07/el-fracking-absorbe-la-inversion-de-las.html
Samuel
Martín-Sosa Rodríguez, International Coordinator,
Ecologistas en Accion