Wall Street Demands Answers From Fossil Fuel Producers on 'Unburnable' Carbon

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Groundbreaking initiative is forcing an investor rethink: What's the value of fossil fuel stocks if companies must leave reserves in the ground?

By Elizabeth Douglass, InsideClimate News      Oct 24, 2013

A well-heeled coalition of investors is asking top fossil fuel companies to calculate the risks of plowing billions into new oil, gas and coal projects. They fear that carbon emission limits and slowing demand will turn them into bad investments that leave investors worse off.

The requests, contained in letters sent to 45 companies last month, are part of an initiative aimed at persuading oil producers and others to rein in their quest to stockpile more carbon energy. They hope to do so by tapping into growing concerns that climate policies and market factors could prevent companies from selling all of their reserves of fossil fuels, which are still growing fast.

Companies with large amounts of such "unburnable" carbon resources could see their stock prices slashed, clobbering the value of investment portfolios that hold the shares. By one estimate, as much as 30 percent of the value of some of the world’s stock exchanges is in proven fossil reserves.

In the letters, the coalition asks the companies to examine and disclose their "exposure to the risks associated with current and probable future policies for reducing greenhouse gas emissions by 80% by 2050."

The initiative is potentially groundbreaking because it comes at a time when a growing number of large shareholders of energy producers are similarly questioning whether costly projects that are underway or on the drawing board will pay off. That rare alignment of interests could convince company boards to weigh the risks of strict climate policies alongside other factors as they review projects.

"We came to this with the goal of really changing the investment behavior of these companies in the mid- to long-term horizon," said Andrew Logan, director of the oil program at Ceres, a nonprofit that organizes businesses and investors interested in climate change and other issues.

"We have real optimism because we're operating in a context where there's actually a lot of dissatisfaction with how the fossil fuel industry is being run—and that's really different from four or five years ago, when the companies were seen as sort of bulletproof."

That's what helped the initiative win the backing of 70 institutional investors, representing about $3 trillion in assets. The list includes large pension funds from California and New York, as well as investment firms in Scotland, Great Britain and Australia. Ceres launched the project along with the Carbon Tracker Initiative, a nonprofit that links capital markets to climate issues. The groups announced the initiative Thursday in a press conference.

The campaign elevates the discussion of "unburnable carbon," a term coined by The Carbon Tracker to describe a relatively new concept borne out of scientific research that's now being championed by a host of other groups worried about climate change. It highlights the possibility that national and global agreements to limit carbon emissions would force fossil fuel companies to leave large oil and coal deposits in the ground because burning them would exceed the limits. That's a development that would "strand" those assets and erase their value.

John Felmy, chief economist at the http://www.api.org/ American Petroleum Institute, an industry advocacy group, isn't buying it.   

"This is either delusion or wishful thinking on the part of some folks who just don’t like fossil fuels," he said. "There's just no justification for that argument. The notion that somehow [oil] is somehow unburnable—from the perspective of keeping people warm, keeping economies going and so on, the reality of this is really clear."

Still, doubts are emerging.

The initiative's central question—whether it's prudent for fossil fuel companies to continue investing based on business-as-usual scenarios—is now being asked by analysts at Wall Street firms such as Goldman Sachs, Citigroup, HSBC, Sanford C. Bernstein Ltd. and others.

A January report from HSBC underscored the potential impact of unburnable reserves by estimating that emissions caps and lower oil prices could put up to 60 percent of the market value of certain European companies at risk. "We believe that investors have yet to price in such a risk, perhaps because it seems so long term," the report noted. "However, we believe it does give an indication of the potential impact on the sector."

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Increasingly, industry analysts are also worrying about demand projections for oil and other fossil fuels, not just pending climate laws.

What if China's energy demand falls well short of the industry's lofty expectations?  What happens to oil if natural gas displaces it in more markets? Can oil and gas companies continue bankrolling the soaring expenses of both new projects and current production without threatening the quarterly payouts investors have relied on for decades? What happens to all those hard-to-reach reserves if world oil prices sink below break-even levels?

"It's a really different world where you have big mainstream analysts saying that it’s not peak oil supply that we should be concerned about—it's the reverse, peak oil demand," said Craig Mackenzie, head of sustainability at the Scottish Widows Investment Partnership, which manages $234 billion in assets. The firm owns stock in fossil fuel companies (except coal), and is one of the companies backing the new Ceres initiative.

For instance, in a new report called "Global Oil Demand Growth—The End is Nigh," Citigroup disputed the broadly held belief that the world's thirst for oil will continue its inexorable rise through to 2030. The study was based on assumptions about fuel efficiency improvements that are already planned for the United States, Europe and China and the steady shift to natural gas-powered commercial vehicles. 

Under Citigroup's analysis, Mackenzie said, "You get global oil demand potentially peaking around 2020, which is a very different story than you get from oil industry forecasts."

Coal Is Particularly Worrisome

But the biggest question for concerned investors is how climate policies will unfold. If governments don't implement tough climate laws, then fossil fuel companies could burn through their reserves as planned providing other factors don't intervene. However, if national or global policies require steep cuts in the use of fossil fuels, they could gut the value of those companies that get stuck with unburnable resources they can't cash in.

The outlook for companies laden with coal is particularly troublesome, analysts say. Mackenzie cited a Bernstein & Co. report that noted that coal demand is falling everywhere except China, and that coal demand there will begin to fall by 2017. New efforts to cut worldwide carbon emissions would accelerate that downward shift, since coal can have three times as much embedded carbon than other fuels. 

In the United States, a mix of plummeting demand and environmental restrictions on harmful emissions has already stranded coal deposits that can't be burned. That shift caused the share prices of coal companies to fall by two-thirds over the last two years, Mackenzie said. 

Predictions for natural gas are far rosier, at least in the short term, since it is replacing the use of coal and oil in many industries.

"These concerns about climate impacts have been around for awhile," said Logan from Ceres. However, he said, the potential climate costs are starting to resonate more broadly with fossil fuel industry investors and the companies themselves. The theory about stranded carbon assets, he added, "has risen from what was seen as a fringe issue a very short time ago, to now firmly being in the mainstream."

What's made the difference is the magnitude of what's at stake, according to Mackenzie of the Scottish Widows Investment Partnership.

"We're talking about trends that are massively significant to share prices," he said. "We're moving to a space where these issues are just much, much more material than they have been."

The Origins of the Debate

Today's debate over the financial impacts of burning fossil fuels recklessly has its roots in a landmark 2009 climate paper by scientists led by Malte Meinshausen, a climatologist at Germany's Potsdam Institute for Climate Impact. The researchers found that at the current rate of fossil fuel use, dangerous warming—surpassing the two degree Celsius limit—could hit the globe in as few as 11 years.

MORE: The Most Influential Climate Science Paper Today Remains Unknown to Most People

The paper included another startling conclusion: That burning all the proven and economically retrievable fossil fuel reserves already claimed by oil, gas and coal companies would add enough carbon to the atmosphere to "vastly exceed the allowable CO2 emission budget for staying below 2C" of warming.

That got the attention of the international financial community, because the values of the world's energy companies are linked to future earnings from selling oil, gas and coal stockpiles that scientists now suggest might have to remain underground.

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Since then, the findings have given rise to often-cited reports by the Carbon Tracker group of London. Environmental activist Bill McKibben, founder of the activist group 350.org, also expanded on the 2009 paper's conclusions in a Rolling Stone article and launched a speaking tour around the theory.

Last month, the concept of stranded and unburnable carbon resources gained the endorsement of the United Nations Intergovernmental Panel on Climate Change, or IPCC, the world's largest scientific body on global warming. The latest IPCC report embraced the view that existing reserves of fossil fuels contain more carbon than what can be burned without exceeding 2 degrees of warming.

MORE: Top 10 Takeaways From the New IPCC Climate Report

Building on that and other publicity, the Ceres-led initiative is now taking the issue to the board rooms of BP, ExxonMobil and other top fossil fuel producers.

"We need to understand how the companies think about these risks, how they prepare for them, and how they're taken into account in their capital investment plans," said MacKenzie of the Scottish investment company.

Logan, the director of Ceres' oil program, said the responses have been encouraging so far.

"We've seen very few companies dismiss the issue out of hand," he noted. "Lots of them essentially acknowledge that there is a real tension between their long-term business plans and any attempt to deal with climate change. That, to me, is a constructive place to start."

Looks like the elite moguls those masters of the universe have finally commissioned their well payed minions to get their hands dirty and draw investment away from the cheap and reliable fossil fuel industry.

These masters of the universe control us financial.

Now finally after nearly 40 years in the making they might succeed in seizing control of ever nations resources as well, through the scam that is AGW.

Shame on this generation for letting this happen.

Future generations when they wage war on these masters of the universe will wonder how this generation ever allowed themselves to be fooled big time.

Come on people lets all get together and destroy the fossil fuel industry...LMFAO.....just don't let me hear complain that its too hot or too cold.

OR

That you can't afford heating and air conditioning..LOL.



Quote:

Universities under fire for investing in fossil-fuel 'polluters' Universities across the UK have been accused of adding to climate pollution by investing more than £5 billion in the fossil-fuel industry after an investigation by three campaign groups http://www.heraldscotland.com/news/home-news/universities-under-fire-for-investing-in-fossil-fuel-polluters.22469272

Ajax is starting to froth at the mouth at the thought that humans may ramp down the combustion rates of fossil fuels

Ajax is so concerned about TAXES that he ignores the 1.9 trillion dollars (IMF estimate) of tax payer funds given to fossil fuel corporations each year

In Australian the fossil fuel sectors receive about 9 billion dollars each year courtesy of the tax payer. 6 billion goes directly to the coal industry.

But Ajax just detests all forms of taxation

Even though his beloved INTERNET is a direct result of state funded research and development. In fact about 96% of all ideas have been funded by the tax payer initially

Oh dear Mr Ajax, cant handle the truth - one must wonder why he calls himself a German citizen??

Ajax wrote on Oct 27^th, 2013 at 7:35pm:

Looks like the elite moguls those masters of the universe have finally commissioned their well payed minions to get their hands dirty and draw investment away from the cheap and reliable fossil fuel industry. These masters of the universe control us financial. Now finally after nearly 40 years in the making they might succeed in seizing control of ever nations resources as well, through the scam that is AGW. Shame on this generation for letting this happen. Future generations when they wage war on these masters of the universe will wonder how this generation ever allowed themselves to be fooled big time. Come on people lets all get together and destroy the fossil fuel industry...LMFAO.....just don't let me hear complain that its too hot or too cold. OR That you can't afford heating and air conditioning..LOL. Quote: Universities under fire for investing in fossil-fuel 'polluters' Universities across the UK have been accused of adding to climate pollution by investing more than £5 billion in the fossil-fuel industry after an investigation by three campaign groups http://www.heraldscotland.com/news/home-news/universities-under-fire-for-investing-in-fossil-fuel-polluters.22469272

You mean they control you financially dont you Ajax.  Whats wrong Ajax; If they go under does that mean your out of a job? 

Chimp_Logic wrote on Oct 27^th, 2013 at 10:07pm:

Ajax is starting to froth at the mouth at the thought that humans may ramp down the combustion rates of fossil fuels Ajax is so concerned about TAXES that he ignores the 1.9 trillion dollars (IMF estimate) of tax payer funds given to fossil fuel corporations each year In Australian the fossil fuel sectors receive about 9 billion dollars each year courtesy of the tax payer. ^ billion goes directly to the coal industry. But Ajax just detests all forms of taxation Even though his beloved INTERNET is a direct result of state funded research and development. In fact about 96% of all ideas have been funded by the tax payer initially Oh dear Mr Ajax, cant handle the truth - one must wonder why he calls himself a German citizen??

There really aint noneed for ajax to cry....science worked ut long ago that not even a tryhard fatcats' ego can grow exponentially  8-)

Chimp_Logic wrote on Oct 27^th, 2013 at 10:07pm:

Ajax is starting to froth at the mouth at the thought that humans may ramp down the combustion rates of fossil fuels Ajax is so concerned about TAXES that he ignores the 1.9 trillion dollars (IMF estimate) of tax payer funds given to fossil fuel corporations each year In Australian the fossil fuel sectors receive about 9 billion dollars each year courtesy of the tax payer. ^ billion goes directly to the coal industry. But Ajax just detests all forms of taxation Even though his beloved INTERNET is a direct result of state funded research and development. In fact about 96% of all ideas have been funded by the tax payer initially Oh dear Mr Ajax, cant handle the truth - one must wonder why he calls himself a German citizen??

GErmans flip they know everything and travel the world telling people so  8-)

BatteriesNotIncluded wrote on Oct 28^th, 2013 at 12:09am:

Chimp_Logic wrote on Oct 27th, 2013 at 10:07pm: Ajax is starting to froth at the mouth at the thought that humans may ramp down the combustion rates of fossil fuels Ajax is so concerned about TAXES that he ignores the 1.9 trillion dollars (IMF estimate) of tax payer funds given to fossil fuel corporations each year In Australian the fossil fuel sectors receive about 9 billion dollars each year courtesy of the tax payer. ^ billion goes directly to the coal industry. But Ajax just detests all forms of taxation Even though his beloved INTERNET is a direct result of state funded research and development. In fact about 96% of all ideas have been funded by the tax payer initially Oh dear Mr Ajax, cant handle the truth - one must wonder why he calls himself a German citizen?? GErmans flip they know everything and travel the world telling people so  8-)

true.... although they probably do know everything

Are these investors idiots. Invest in something else then. Simple. That is the way of investment.

If these loony left a holes think they can change things in the corridors of investor meetings, they are truelly dumb asss shite.

progressiveslol wrote on Oct 28^th, 2013 at 6:07pm:

Are these investors idiots. Invest in something else then. Simple. That is the way of investment.

Not quite how it works I' afraid

There are classes of investors. The mum and dad and small to medium investors are subjected to the vicious, rigorous and cold realities of tough love market discipline

The extremely wealthy fascist corporatized pseudo Stalinist Plutocrats are protected via the corporate and elite socialist welfare state.

Didn't you know there were special rules for the elite investor?

Didn't you see what happened during the GFC in 2008?

The top 0.5% in the world have become even richer during the period 2008 to 2011 (35% richer to be precise)

And who created the financial crisis in the first place?

Who bailed them out?

Who is poorer and less empowered today?

And who is richer and more powerful today?

The picture you paint of the INVESTOR has no meaning in the real world.

The real world is stacked against the people. democracy and freedom

YOU SIR are a slave!

In other words.... there is no such thing as a free market

BatteriesNotIncluded wrote on Oct 29^th, 2013 at 12:38am:

In other words.... there is no such thing as a free market

Not yet  ;)

Vuk11 wrote on Oct 29^th, 2013 at 1:21am:

BatteriesNotIncluded wrote on Oct 29th, 2013 at 12:38am: In other words.... there is no such thing as a free market Not yet  ;)

Not ever- can't happen by definition

Chimp_Logic wrote on Oct 27^th, 2013 at 10:07pm:

Ajax is starting to froth at the mouth at the thought that humans may ramp down the combustion rates of fossil fuels

Yes your mates like  Jorgen Randers who don't want the third world countries to develop, and they donot want the middle class of the western world to develop either.

This nazi pig and his comrades are behind Anthropogenic Global Warming, they thought of it, and some how they have managed to brainwash you lot in its implementation.


Quote:

Ajax is so concerned about TAXES that he ignores the 1.9 trillion dollars (IMF estimate) of tax payer funds given to fossil fuel corporations each year In Australian the fossil fuel sectors receive about 9 billion dollars each year courtesy of the tax payer. 6 billion goes directly to the coal industry. But Ajax just detests all forms of taxation

Hey chimp show me where you are getting this information from that tax payers give $9 billion to fossil fuels sector....????

Ajax wrote on Oct 29^th, 2013 at 8:05am:

Chimp_Logic wrote on Oct 27th, 2013 at 10:07pm: Ajax is starting to froth at the mouth at the thought that humans may ramp down the combustion rates of fossil fuels Yes your mates like  Jorgen Randers who don't want the third world countries to develop, and they donot want the middle class of the western world to develop either. This nazi pig and his comrades are behind Anthropogenic Global Warming, they thought of it, and some how they have managed to brainwash you lot in its implementation. Quote: Ajax is so concerned about TAXES that he ignores the 1.9 trillion dollars (IMF estimate) of tax payer funds given to fossil fuel corporations each year In Australian the fossil fuel sectors receive about 9 billion dollars each year courtesy of the tax payer. 6 billion goes directly to the coal industry. But Ajax just detests all forms of taxation Hey chimp show me where you are getting this information from that tax payers give $9 billion to fossil fuels sector....????

are you implying that this 9 billion dollar figure for Australian subsidies to the fossil fuel and mining sectors is incorrect?

The IMF put the global figure to 1.9 trillion dollars per year. (not including the cost of oil and resource wars - you can quintiple that figure if you include the cost of warfare)

You should really research these things Mr Ajax

lots of goodies for Australian polluters and mining corporations - 83% of which are foreign owned

Notice how the WA state is essentially bankrupt, even though the state has been benefiting from several decades of a mining boom

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Chimp_Logic wrote on Oct 29^th, 2013 at 12:28pm:

lots of goodies for Australian polluters and mining corporations - 83% of which are foreign owned Notice how the WA state is essentially bankrupt, even though the state has been benefiting from several decades of a mining boom

I'm getting old chimp I cant see a damn thing on that table.

Yes that smacking WA premier Colin Barnet has sent the state broke, I think when he came into power WA had a $4 billion dollar debt and he has blown it out to $28 billion dollars.

How the bugger can a state like WA with all the mining boom that's been happening there be in debt.......????

And this Colin Barnet character has the balls to ask Abbott to raise the GST so we (all of Australia) can pay for his mismanagement of the state.

This person should be jailed.........!!!!!

Along with John Cain.....pyramid.

and Jeff Kennett selling our utilities as though his granddaddy left them to him in his will.

and Paul Keating for selling the commonwealth bank and floating our dollar.

OOPs I forgot Julia Gillard & Wayne Swan & Bob Brown for placing all of Australia into financial slavery for ever with the carbon tax.

Boy if I was in power these arse wipes would be in jail and that's if their lucky.....!!!

Ajax wrote on Oct 30^th, 2013 at 9:43am:

Chimp_Logic wrote on Oct 29th, 2013 at 12:28pm: lots of goodies for Australian polluters and mining corporations - 83% of which are foreign owned Notice how the WA state is essentially bankrupt, even though the state has been benefiting from several decades of a mining boom I'm getting old chimp I cant see a damn thing on that table.

the important figures are the total subsidies listed at the bottom for each financial year.

All figures seem to be OVER 10 billion dollars per annum Mr Ajax

I am sure you are impressed with this level of corporate social welfare Mr Ajax.

The fossil fuel sectors and mining sectors employ about 3% of the total Australian workforce and are 83% foreign owned. (there are more people employed by the Queensland tourism industry)

If you do the simple math, it actually costs the Average Australian to have a fossil fuel and mining export industry in this country. And this is not surprising seeing as WE only own about 17% of it and dish out tax payer subsidies and perks every year to the tune of billions. And most importantly, we legislate generous tax evasion schemes for these big corporates.

And of course when Howard was in for a decade he neglected the infrastructure the mining boom needed to grow.

Of course the big foreign owned corporations go with hat in hand asking for socialist welfare handouts and incentives in order build the infrastructure THEY use.

And YOU are worried about a pissy little Carbon Tax?

(Sweden has had a carbon tax for over 25 years - currently it is set at about $140 per tonne. The Swedish economy has grown about 35% during this period of Carbon taxation. Look around Ajax, do the sums, follow the money trails - they all lead to the same fascists)

Ajax wrote on Oct 30^th, 2013 at 9:43am:

Chimp_Logic wrote on Oct 29th, 2013 at 12:28pm: lots of goodies for Australian polluters and mining corporations - 83% of which are foreign owned Notice how the WA state is essentially bankrupt, even though the state has been benefiting from several decades of a mining boom I'm getting old chimp I cant see a damn thing on that table. Yes that smacking WA premier Colin Barnet has sent the state broke, I think when he came into power WA had a $4 billion dollar debt and he has blown it out to $28 billion dollars. How the bugger can a state like WA with all the mining boom that's been happening there be in debt.......???? And this Colin Barnet character has the balls to ask Abbott to raise the GST so we (all of Australia) can pay for his mismanagement of the state. This person should be jailed.........!!!!! Along with John Cain.....pyramid. and Jeff Kennett selling our utilities as though his granddaddy left them to him in his will. and Paul Keating for selling the commonwealth bank and floating our dollar. OOPs I forgot Julia Gillard & Wayne Swan & Bob Brown for placing all of Australia into financial slavery for ever with the carbon tax. Boy if I was in power these arse wipes would be in jail and that's if their lucky.....!!!

Lol, pro free market bullshite artists recommending barnett be jailed equals rolled gold inmy book  ;D