Stock markets hold 80% more fossil fuel reserves than can be burned under 2°C climate limit: report

Fossil fuel companies listed on the world’s stock markets are holding about 80% more fossil fuels than can be burned in the next 40 years if global warming is to be limited to 2°C, according to Carbon Tracker, a financial think-tank. In its report, titled “Unburnable carbon: are the world’s financial markets prepared for a carbon bubble?, the NGO says that only one fifth of the world’s fossil reserves can be used based on the 2°C threshold that the Intergovernmental Panel on Climate Change says would avoid dangerous climate change. The report says that the London Stock Exchange is particularly exposed with 105.5 GtCO2 of fossil fuel reserves listed, over ten times the UK’s domestic carbon budget for 2011 to 2050, of around 10 GtCO2. The issue is one that has been raised previously by prominent asset managers. At a recent conference in London, Nick Robins, head of HSBC’s Climate Change Centre of Excellence in London, said: “At least one-half of fossil fuel assets will have to be left in the ground according to the most likely projections by climate scientists. He said investors were still pricing extractives companies as if all their reserves were going to be exploited.The Carbon Tracker report argues that stock market prices are short-term and reward companies for finding more reserves assuming there is no limit on how much can be burned. It said its own focus on reserves links climate change to the material assets of companies, which are fundamental to the value placed on shares. As a result, it said pension funds and other asset owners face the risk of being exposed to ‘stranded assets’. Carbon Tracker says the new UK Financial Policy Committee, set up to monitor risks and bubbles in the financial system, should urgently address the “carbon bubble” and ensure regulators require greater disclose on reserves and carbon emissions. It said the UK Kay review into the structure of equity markets should also examine the issue. James Leaton, author of the report said: “Markets have locked a carbon intensive future into their operating systems. Unless this model changes, the capital to create a low carbon future will not be available. It is up to regulators to act to avert a crisis and prevent this carbon bubble from bursting.”
Link to report