14 December 2013

Bursting the Bubble of Carbon Finance

The idea of a carbon bubble first came to my attention when I was researching a submission to the Environmental Audit Committee's Inquiry into Green Finance on behalf of the Green House thinktank. Anmongst other questions they asked:

'How effective are the financial markets in matching available finance to the required investment in renewable energy and other green projects? To what extent is a potential “carbon bubble” a real risk?'

They referred those providing evidence to a page from the seemingly well funded Carbon Tracker project which seeks to quantify the over-valuation of what they refer to as 'stranded assets'. The project seeks to put a value on the carbon-related assets that cannot be realised if we seriously address the issue of climate change. Once we introduce rigorous carbon limits the fuel their value relies on becomes unburnable and therefore the value is lost. Carbon Tracker reports frighteningly large numbers of potentially stranded assets: they take a value of $4trillion in 2012 that is used servicing $1.27trillion in outstanding corporate debt.

The frightening way of framing of this discussion is that once the over-valuation is recognised it could precipitats another collapse in financial markets and another financial crisis. This always seemed to me hugely naive suggesting that the rich and powerful who control these assets would permit political decisions on climate change to destroy their value. It was in this vein that I responded to the EAC inquiry:
'The idea of a "carbon bubble" assumes that legislation passed in the wake of concern about climate change to limit carbon dioxide emissions is more powerful than the political influence of fossil-fuel companies. While we would like to believe that this is the case we suggest that it is a rather naive position. Is it not more likely that, if energy companies find themselves with quantities of fuel that cannot be burned within existing carbon limits, they lobby to have those limits changed rather than allowing their investments to be diminished? We suggest that the EAC is in a strong position to generate evidence on this to prepare for such lobbying.'

Then I simply forgot about the debate. What brought it to my attention again was the machinations of self publicist MP Jacob Rees-Mogg and the internal Tory party debates about green crap and green levies. As I blogged earlier, it seems fairly apparent that the concern of Tory grandees is for their own assets and not shivering pensioners. Here we see the playing out of the political end-game of climate change. The post-fossil world is one of community-owned energy and economic liberation, so there is no surprise that climate change is a battle based in political economy rather than science.

The discussion about the carbon bubble issue has become a dialogue of the deaf between holders of carbon-related assets and those who are fearful about The Financial Crisis round II. How refreshing it was, therefore, to be at the Compass Youth meeting on this issue at Portcullis House last week. Although the meeting itself was advertised in a fairly scary way, through debating the issue we discovered that in reality we may not be facing a catastrophic economic collapse but an orderly transition to a post-fossil future matched by a gradual reduction in the value of carbon-related assets.

In a strange way it is even encouraging that Bloomberg recently launched their carbon risk valuation tool. Investors and those who serve them seem unconvinced by the Tories' dinosaur protection plans and appear to see the wind is blowing in the direction of renewables. And we can all play our part here by encouraging those who hold our assets, whether our pension funds, universities, or local authorities, to divest from carbon assets just as they have or should have divested from assets relating to tobacco, alcohol and arms.


1 comment:

  1. I especially agree with your point about "no surprise that climate change is a battle based in political economy rather than science". This probably explains why, although a global scheme to deal with CFCs depleting the ozone layer was eventually agreed, a global scheme for carbon and global warming makes no real progress.