Investors in fossil fuel firms given CO2 warning

The majority of fossil fuel reserves cannot be burned if we are to limit global temperature rises to 2°C, warns a new report from Carbon Tracker and the Grantham Research Institute on Climate Change and the Environment

According to the analysis, only a fraction of the 2,860Gt of carbon embedded in fossil fuel reserves already identified can be burned if we are to avoid a rise in global temperatures of more than 2°C above pre-industrial levels by 2050. Just 900GtCO2 can be burned for an 80% probability to stay below 2°C, states the report.

It adds that investors need to understand that as much as 80% of the coal, oil and gas reserves of listed companies is unburnable.

It describes the $674 billion invested in 2012 by the top 200 oil and gas and mining companies to find and develop more reserves and new ways of extracting them, as wasted capital, with the reserves likely to become “stranded assets”, replaced by low-carbon alternatives.

“Smart investors can already see that most fossil fuel reserves are essentially unburnable because of the need to reduce emissions in line with the global agreement by governments to avoid global warming of more than 2°C,” commented Nicholas Stern, chair of the Grantham Research Institute and author of the influential 2006 report on the economics of climate change.

“Investors can see that investing in companies that rely solely or heavily on constantly replenishing reserves of fossil fuels is becoming a very risky decision.”

The report warns that the share values of the top fossil fuel companies, which currently have a collective market value of $4 trillion, could fall by up to 60% in a low-emissions scenario.

Stern points out that the continuing financial crisis shows what can happen when risks accumulate unnoticed, and advises companies and regulators to work together to quantify the risks associated with high-carbon assets.