This is a fascinating article, and huge.
The idea is that — worldwide — stocks based on carbon reserves are essentially a multi-trillion dollar bubble, because they cannot actually ever be burned (if they are burned it’s — as James Hansen has said — “game over for Planet Earth”).
The bubble is real only if carbon reserves are “unburnable,” and the argument for why they are unburnable is essentially the argument being made by the carbon divestment (“Do The Math”) campaign led by Bill McKibben, Naomi Klein, and millions of climate activists.
It comes down to this: EITHER the carbon reserves (and thus stocks) of energy companies have full value OR civilization on Earth has a viable future. Up until reading this article, I was betting on the energy companies and not holding much hope for the Earth (which is absurd, of course).
I find this a very hopeful development (for the planet, but not for the markets).
This is a grim development for financial markets.
Hold on to your hats, a disturbance in the force may be coming soon to a planet near you.
By Damian Carrington, The Guardian
Thursday, April 18, 2013 20:11 EDT
The world could be heading for a major economic crisis as stock markets inflate an investment bubble in fossil fuels to the tune of trillions of dollars, according to leading economists.
“The financial crisis has shown what happens when risks accumulate unnoticed,” said Lord (Nicholas) Stern, a professor at the London School of Economics. He said the risk was “very big indeed” and that almost all investors and regulators were failing to address it.
The so-called “carbon bubble” is the result of an over-valuation of oil, coal and gas reserves held by fossil fuel companies. According to a report published on Friday, at least two-thirds of these reserves will have to remain underground if the world is to meet existing internationally agreed targets to avoid the threshold for “dangerous” climate change. If the agreements hold, these reserves will be in effect unburnable and so worthless – leading to massive market losses. But the stock markets are betting on countries’ inaction on climate change.
Read the full article here.