Why energy producers need to pay heed to global warming

Santa with oil tanker

Image: AZRainman/Flickr.

The world’s top climate change scientists are now 95 percent certain that humans are responsible for global warming. That’s the headline takeaway from the latest findings by the Intergovernmental Panel on Climate Change. Global temperatures are the hottest since the last ice age and the planet is only getting warmer.

What to make of this news? On one hand, it’s likely not much of a surprise to most of us. Extreme weather events like superstorm Sandy are becoming more commonplace. Glaciers are melting, drought is gripping more parts of the world, and the amount of Arctic sea ice shrinks more each year.

A warming planet clearly holds profound consequences for us all, but one group that should by paying particular attention are the world’s energy producers. The details of the IPCC’s findings take direct aim at the long-term value of fossil fuel reserves.

The IPCC has put new numbers to the planet’s so-called carbon budget. To limit the rise in average global temperatures to 2 degrees Celsius from preindustrial levels, the IPCC says we can burn no more than 1 trillion tons of carbon. The bad news is that we’ve already combusted more than half that amount. At our current rate of fossil fuel consumption, we’ll burn through the rest in less than three decades.

Global energy producers have already found more than enough reserves to ensure we can blow past this mark without breaking a sweat. Even after using up our carbon quota, it’s estimated the world will still have 2.5 trillion tons of carbon waiting to burn. Every year, moreover, producers add to global reserves, whether through unlocking natural gas shale formations, oil sands bitumen plays, or drilling deep into the ocean floor. It’s worth asking, though, are these carbon reserves really valuable resources or will they end up as stranded assets?

The energy industry — oil, natural gas, and coal producers — will undoubtedly dismiss the report as alarmist. The IPCC’s findings, though, aren’t fundamentally different from those of the International Energy Agency, a bunch that’s typically much more sympathetic to energy producers. Under current policies, the IEA puts the chances of holding global temperature increases to less than 2 degrees — the threshold at which global warming tips us into the danger zone — at a scant 2 percent.

Executives at energy companies are quick to trumpet their fossil fuel reserves to investors. From a market perspective, it’s easy to understand why. Carbon reserves, be they oil, coal or natural gas, are valuable assets that will generate future cash flow for owners. Indeed, proven reserves play a large part in determining the market valuations of energy stocks. A much more rare occurrence, though, is hearing executives discuss the carbon footprint that will result from combusting those same reserves. That side of the ledger, according to the IPCC report, is becoming a more pressing liability.

We can hope the world won’t just blithely continue to emit ever-increasing amounts of carbon into the atmosphere, given the environmental threat it poses to the planet. Nature’s feedback loop, whether it’s storms, droughts, or flooding, is already sending a stark message. How long will it be before world leaders start listening in earnest and come up with a whole new set of rules for carbon emissions?

When that happens, what will it mean for the present value of hydrocarbon reserves that currently buoy the balance sheets of global energy companies? Just look at the sinking share prices of U.S. coal firms following the Environmental Protection Agency’s tough new standards for carbon emissions for a glimpse of what’s likely to come.

If the world’s scientific community is 95 percent certain that future carbon emissions will bring about further climate change, then investors should be 95 percent certain that carbon reserves will be valued a lot differently tomorrow than they are today.

– Jeff Rubin, Jeff Rubin’s Smaller World

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Comments

  1. James R. Martin says

    “The IPCC has put new numbers to the planet’s so-called carbon budget. To limit the rise in average global temperatures to 2 degrees Celsius from preindustrial levels, the IPCC says we can burn no more than 1 trillion tons of carbon. The bad news is that we’ve already combusted more than half that amount. At our current rate of fossil fuel consumption, we’ll burn through the rest in less than three decades.”

    ====

    A massive amount of data very strongly suggests (to put it mildly) that the IPCC’s so-called “carbon budget” is a pathetic exaggeration.

    This first paragraph might have you thinking that its author tends toward the denialist or “skeptic” end of the interpretive spectrum. But the IPCC’s exaggeration works in the opposite direction: they widly overstate the relative safetly of continuing to emit ANY more carbon into the atmosphere. Any at all.

    Up North we have pretty much everything either melting of thawing, which fact is disturbing in lots of ways, but it’s disturbing mainly in that the result is the potential kicking in of irreversible feedback loops, in which thawing and melting results in conditions which further amplify thawing and melting. The reflective ice and snow which had covered the sea becomes replaced with thermally absorptive blue water. The warming waters and land (e.g., massive peat bogs) release both CO2 and methane. The worse any of this gets the more worse it it is likely to get. And we may already be at a “tipping point” beyond which there is no return!

    Many (though a minority of) scientists now believe we’re at, near, or beyond catastropic irreversibility. And I think we should take heed, cross our fingers, and begin to create a zero-carbon (or as near as we can) culture and economy as if all of human (etc.) life depended on it. As if it were a global emergency.

    The IPCC’s “climate budget” is the singularly most dangerous idea I know of. It suggests that it might be somewhat safe-ish to nearly double the CO2 emissions from the roughly half trillion tons already emitted since the dawn of industrialism. But this IPCC suggestion is based on what? Has the IPCC really improved its prognosticative capacity over recent years? Do we not recall that the Arctic meltdown now occuring was expected to arrive at the end of the present century, if at all? Why did they miss the mark so badly? I suspect they did so because they failed to appropriately consider self-reinforcing feedbacks, especially those we see beginning to set in up North.

    The other day I jumped in on a conversation happening at a cafe/bookstore. These guys were discussing the climate crisis, and I asked one of them, “What needs to happen?” And he said, “I’ve been thinking along the lines of a “Climate Spring” — which I take to be an allusion to the so-called “Arab Spring”. I think he’s probably right. We need a revolt, a social and political refusal to participate in the carbon intensive culture and politic. And it should begin … Now. But in spring, perhaps, it will be warm enough for setting up tents in public spaces again. But this time, let’s not call it “Occupy”. Let’s have learned from Occupy, and draw on its energy. But with a new name.

    • klem says

      ” We need a revolt, a social and political refusal to participate in the carbon intensive culture and politic. And it should begin … Now. ”

      I agree completely, you should stop burning all fossil fuels right now. The more people who do this the better. That way there will be more for me and my huge beautiful Hemi Ram. Wahoo!

      Good luck with your little carbon revolt thingy down at the cafe. Don’t forget your purse! Lol!

      • James R. Martin says

        Klem might be one of … “Those who have succumbed [and] now hold[s] hands in a circle and taunt the very planet that gives us life.”

        ….

        “The art of propaganda has been nothing less than brilliant. The deceit is so thick – you need a knife to cut through it. The corruption and greed so deep you need wings to stay above it and thigh high boots to wade through it. An alluring tapestry of luminous lies, interwoven with finely textured deception and silk-like corruption – as smooth and seductive as freshly churned butter. The pursuit of man’s mind by way of domination has been the greatest and most successful experiment – the manipulation of man’s mind has resulted in a massive erosion of empathy, which has allowed status quo “business as usual” to continue uninterrupted with little resistance. Capitalism effectively bred a contempt for our Earth that multiplied like a virus. The pollution of mind mutated into narcissism with inflicted self-hatred to form a suicidal Molotov cocktail. Those who have succumbed now hold hands in a circle and taunt the very planet that gives us life. The ugly side of humanity continues to violently pierce our Earth Mother with drills and slash her beautiful skin with razors. She is losing breath. She is dying. Yet, when she lashes back, it will be with an Armageddon deathblow against which our own actions will resemble childish prattle. And perhaps not until this time will global society finally recognize that our shared purpose was not to compete with one another and claim dominance and superiority over our Earth Mother – but rather our role was to protect, defend and nurture. The human family – under the arm of its EuroAmerican “big brother” – will have finally succeeded in conquering our shared planet, only to find that we have destroyed ourselves.” – Cory Morningstar, excerpt from part II of the exposé, The 2º Death Dance – The 1º Cover-up

  2. James R. Martin says

    “How long will it be before world leaders start listening in earnest and come up with a whole new set of rules for carbon emissions?”

    Given that “world leaders” are caught up in a pseudo-democratic faux politics in which money =power, I’d prefer to put my faith in the possibility of a grassroots radical democracy movement which would repair this basic fault and get busy getting good and important work done. Politics isn’t enough — and especially not politics as usual (a.k.a. “conventional politics”). Chances are slim. Time is short. Let’s get busy.

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