Your Assets are at Risk.
Beware the Carbon Bubble.
Climate change poses huge financial risks to investors.
If you thought the housing bubble and crash of 2008 were bad, consider the carbon bubble: A ticking time-bomb for fossil fuel company investors that analysts at HSBC have predicted could place “40-60% of market cap” of those equities in peril.
In case that doesn’t register, we’ll elaborate. Scientists have determined we can only burn a fraction of known fossil fuel reserves if we are to preserve a livable climate. This means the 100 largest coal, oil and gas companies can’t ever burn up to 80% of their underground deposits. If they do, we will likely shoot past the 2 degree Celsius (3.6 degree F) temperature increase nations have deemed the upper safe limit for civilization.
And that’s why we have a bubble. Markets currently value most fossil fuel companies assuming they can burn all current reserves and continue looking for more. But this is woefully shortsighted, because as governments commit to emission reductions (as they did last year in Paris), a significant portion of these reserves will become unusable “stranded assets.”
Before you dismiss this as more “alarmist crazy talk,” consider that since 2011, the market cap of the top 13 US coal producers has dropped a staggering 93%, from $62.5 billion to only $4.59 billion. The carbon bubble not only can happen, it is happening.
Henry Paulson, Treasury Secretary under George W. Bush, is worried. "When the credit bubble burst in 2008, the damage was devastating. We’re making the same mistake today with climate change. We're staring down a climate bubble that poses enormous risks to both our environment and economy."
Citi estimates that the stranded assets could amount to $100 trillion by 2050. Lord Carney, Governor of the Bank of England, warns the carbon bubble threatens the global financial system. “Climate change will threaten financial resilience and longer-term prosperity. While there is still time to act, the window of opportunity is finite and shrinking.”
This is why so many conservative economists want to put a “price” on carbon to speed the clean energy transition while allowing the markets to cushion and adjust.
How should we price carbon? Stay tuned and learn more at pricecarbon.org.
 The Economist, “Unburnable Fuel,” May 4, 2013.
 Carbon Tracker, “Unburnable Carbon: Are the world’s financial markets carrying a carbon bubble?” November, 2011.
 Christopher Coats, “Market Cap of US Coal Companies Continues to Fall,” Institute for Energy Economics and Financial Analysis. March 23, 2016.
 Henry Paulson, “The Coming Climate Crash: Lessons for climate change in the 2008 recession,” The New York Times. June 21, 2014.
 Citi, “Energy Darwinism II: Why a low carbon future doesn’t have to cost the earth,” August, 2015. Excerpt on page 8.
 Mark Carney, Governor of the Bank of England, in a speech at Lloyd’s of London on September 29, 2015.