From the UNIVERSITY OF CAMBRIDGE and the “peak carbon” department, comes this gloom and doom study which is just a thinly veiled “divest from fossil fuels now” strategy like the one Bill McKibben and 350.org keeps pushing.
‘Carbon bubble’ coming that could wipe trillions from the global economy — study
Fossil fuel stocks have long been a safe financial bet. With the International Energy Agency projecting price rises until 2040, and governments prevaricating or rowing back on the Paris Agreement, investor confidence is set to remain high.
However, new research suggests that the momentum behind technological change in the global power and transportation sectors will lead to a dramatic decline in demand for fossil fuels in the near future.
The study indicates that this will now happen regardless of apparent market certainty or the adoption of climate policies – or lack thereof – by major nations.
Detailed simulations produced by an international team of economists and policy experts show this fall in demand has the potential to leave vast reserves of fossil fuels as “stranded assets”: abruptly shifting from high to low value sometime before 2035.
Such a sharp slump in fossil fuel price could cause a huge “carbon bubble” built on long-term investments to burst. According to the study, the equivalent of between one and four trillion US dollars could be wiped off the global economy in fossil fuel assets alone. A loss of US$0.25 trillion triggered the crash of 2008 by comparison.
Publishing their findings today in the journal Nature Climate Change, researchers from Cambridge University (UK), Radboud University (NL), the Open University (UK), Macau University, and Cambridge Econometrics, argue that there will be clear economic winners and losers as a consequence.
Japan, China and many EU nations currently rely on high-cost fossil fuel imports to meet energy needs. They could see national expenditure fall and – with the right investment in low-carbon technologies – a boost to Gross Domestic Product (GDP) as well as increased employment in sustainable industries.
However, major carbon exporters with relatively high production costs, such as Canada, the United States and Russia, would see domestic fossil fuel industries collapse. Researchers warn that losses will only be exacerbated if incumbent governments continue to neglect renewable energy in favour of carbon-intensive economies.
The study repeatedly ran simulations to gauge the outcomes of numerous combinations of global economic and environmental change. It is the first time that the evolution of low-carbon technologies has been mapped from historical data and incorporated into ‘integrated assessment modeling’.
“Until now, observers mostly paid attention to the likely effectiveness of climate policies, but not to the ongoing and effectively irreversible technological transition,” said Dr Jean-Francois Mercure, study lead author from Radboud University and Cambridge University’s Centre for Environment, Energy and Natural Resource Governance (C-EENRG).
Prof Jorge Viñuales, study co-author from Cambridge University and founder of C-EENRG, said: “Our analysis suggests that, contrary to investor expectations, the stranding of fossil fuels assets may happen even without new climate policies. This suggests a carbon bubble is forming and it is likely to burst.”
“Individual nations cannot avoid the situation by ignoring the Paris Agreement or burying their heads in coal and tar sands,” he said. “For too long, global climate policy has been seen as a prisoner’s dilemma game, where some nations can do nothing and get a ‘free ride’ on the efforts of others. Our results show this is no longer the case.”
However, one of the most alarming economic possibilities suggested by the study comes with a sudden push for climate policies – a ‘two-degree target’ scenario – combined with declines in fossil fuel demand but continued levels of production. This could see an initial US$4 trillion of fossil fuel assets vanish off the balance sheets.
“If we are to defuse this time-bomb in the global economy, we need to move promptly but cautiously,” said Hector Pollitt, study co-author from Cambridge Econometrics and C-EENRG. “The carbon bubble must be deflated before it becomes too big, but progress must also be carefully managed.”
One of the factors that may contribute to the tumult created by fossil fuel asset stranding is what’s known as a “sell-out” by OPEC (Organisation of the Petroleum Exporting Countries) nations in the Middle East.
“If OPEC nations maintain production levels as prices drop, they will crowd out the market,” said Pollitt. “OPEC nations will be the only ones able to produce fossil fuels at the low costs required, and exporters such as the US and Canada will be unable to compete.”
Viñuales observes that China is poised to gain most from fossil fuel stranding. “China is already a world leader in renewable energy technologies, and needs to deploy them domestically to tackle dangerous levels of pollution. Additionally, stranding would take a higher toll on some of its main geopolitical competitors. China has a strong incentive to push for climate policies.”
The study authors suggest that economic damage from adherence to fossil fuels may lead to political upheaval of the kind we are perhaps already seeing. “Mass unemployment from carbon-based industries could feed public disenchantment and populist politics,” Viñuales said.
The authors argue that initial actions should include the diversifying of energy supplies as well as investment portfolios. “Divestment from fossil fuels is both a prudential and necessary thing to do,” said Mercure. “Investment and pension funds need to evaluate how much of their money is in fossil fuel assets and reassess the risk they are taking.”
“A useful step would be to expand financial disclosure requirements, making companies and financial managers reveal assets at risk from fossil fuel decline, so that it becomes reflected in asset prices,” Mercure added.
###
The study: https://www.nature.com/articles/s41558-018-0182-1
Discover more from Watts Up With That?
Subscribe to get the latest posts sent to your email.
Good Lord you’re right you jolly clever Cambridge people!
Just look how energy prices are tumbling in Germany and Australia where clean energy adoption is most advanced.
Quick lets all go short on carbon – after you sir!
And if someone develops batteries with the performance of Robert Heinlein’s Shipstones, it will disrupt all energy markets. And if pigs fly, one would need to carry an umbrella.
When they say Looming “carbon bubble” does that mean as carbon based life forms we are all going to balloon up like Michelin man and then burst?
Oxford and Cambridge were once elite universities, nowadays only the professors are among the imaginary elites. On studies, which come from these two universities and have the ever popular topic of man-made climate change, I would not set a cent. Nothing comes out of these facilities anymore, other campuses have far outstripped them. Oxford and Cambridge are to a certain extent the dinosaurs of research, old and immovable.
I say philsalmon is right, while talking and talking about money destruction by fossil energy in an imaginary future scenario, the economies of Europe lose annually some 100 billion real Euro by the physically and economically non-functioning energy transition by “government order”.
As an alumni of Cambridge I’m ashamed that idiots like this are now in post.
+1
An alumnus, surely – or perhaps not?
I can’t go short on Carbon I am already long on Rossi and the E-cat ./sarc
If these idiots had the courage of their convictions they would be losing their shirts shorting oil and oil stocks. In reality, demand is headed upward and prices are headed upward and production is following price. Just as it’s supposed to do in a market economy.
If they were investment advisors they would be looking at malfeasance charges.
Question although EV are not ‘directly ‘ powered by fossile fuels , doe anyone known how many products of the oil industry are used within EV’s
There are lubricating oils and plastics.
Regardless, most EV’s are powered by electricity that was generated by coal.
Everything*
The glass uses a polymer type coating and even the paint has petroleum based coloring, hardeners and clear coat. Plastics and foam for bumpers, polymers for seats, cushions, interior panels and carpet. plastics for radio, dash, inner door panels and handles, plastic for wire insulation etc.etc…
Body and other fasteners are plastic type ‘push pins’. Plastic bushings in shocks and steering/syspendion components and on and on…
Any metal such as steel needs carbon added and gas for smelters.
Even the new fuel cell cars use PEM fuel cells…Polymer Exchange Membranes. Even the battery case is…plastic.
Carbon fiber body and other components use petroleum derived hardeners.
*Aluminum engine blocks and a few minor components are the only exception besides lead in traditional batteries.
However, the mining of aluminum consumes a lot of fuel.
https://www.assemblymag.com/articles/86440-plastics-under-the-hood
Since EV’s need to be lightweight, even more plastic is needed.
A typical car requires 100 or more gallons of oil to make its plastic components.
https://www.google.com/amp/s/amp.livescience.com/5449-chemistry-life-plastic-cars.html
“However, the mining of aluminum consumes a lot of fuel.”
Quibble. Refining metallic aluminum from its oxide ore bauxite, consumes enormous quantities of electricity. Bauxite is essentially a type of clay. Mining it is the least energy intensive part of the production of aluminum.
And they are transported from the manufacturer to overseas markets on huge shipping vessels, powered by carbon-based fuels (I wonder how big a battery, and how long the charging times, would be needed to power electric replacement motors). For that matter, did the study suggest what would replace fossil fuels used for cargo and container ships, or jet fuel?
I dismay at the number of people who think oil, gas, and coal would no longer be needed if we all had electric vehicles, and power was from solar and wind (the former could be mandated, but the latter is simply not feasible).
The only thing that could crash the markets is if the lunatic alarmists get their way.
Seems this report has bought wholesale into the Green ‘Energy’ propaganda that it is cheaper than fossil fuels.
Modelling the future from a false premise will only produce false predictions; just as climate models have.
Leaving that aside I suspect the death of EVs etc will come from people voting to save their pocket and I doubt the models considered the political fallout and political casualties that are lining themselves up on a “Green” bandstand.
“Lewdzer” report.
Ja ja ja
“Publishing their findings today in the journal Nature Climate Change” – that well-known and highly respected investors’ journal. Says it all.
Is this why Brent Crude has almost tripled in price since the start of 2016 (perhaps coincidentally just after the Paris accord was drafted)? Investors and traders are clearly keen to strand these assets, it seems.
“…that well-known and highly respected investors’ journal.”
You got me cracking up with that! Thank you.
Today’s date? April 1st? Nope, that’s not it.
I used to hear words like “Study from Cambridge.. Harvard… Yale” and think cool the smart people are talking. Now when I hear those words I cringe for the impending hilarious stupid squawking nonsense. Hysterical communists have to be the most destructive force ever known.
Repeatedly ran simulations- that’s that then
the momentum behind technological change in the global power and transportation sectors
Do they mean the momentum coming from governgreens pushing the (electric) car up the (market) hill, with a solar panel and windmill on a trailer in the back?
“Momentum” behind any change is almost always based on financial advantage. Currently, the “technological change in the global power and transportation sectors” they speak of is based on massive amounts of woo. The paper is an irresponsible fable.
If lightning did somehow strike and large numbers of EVs hit the streets, then the price of oil would drop.
However if that happened, then oil would become competitive with coal and natural gas when it came to powering plants that generate electricity.
Not only that, but plummeting oil prices would reduce the operating costs of ICE vehicles to the point where they would be much, much cheaper to own.
One constant with these professors. They have absolutely no concept of how the real world works.
“A useful step would be to expand financial disclosure requirements, making companies and financial managers reveal assets at risk from fossil fuel decline, so that it becomes reflected in asset prices,”
That quote put in mind of what you just wrote – “they have no concept of how the real world works”.
They apparently have no clue that the energy business has *always* been a boom and bust business, right from the day that Spindletop blew in over a century ago. Because of that, everyone who has *ever* invested in this area has *always* known that price risk, and the accompanying asset revaluations, is one of the greatest factors in determining long term price horizons.
This “genius” is proclaiming a “great insight” something that the investing world figured out well over a century ago.
From Wikipedia: An economic bubble or asset bubble (sometimes also referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania, or a balloon) is trade in an asset at a price or price range that strongly exceeds the asset’s intrinsic value. It could also be described as a situation in which asset prices appear to be based on implausible or inconsistent views about the future.
Fossil fuels will be in a bubble situation? Not likely, since their pricing is highly consistent with supply and demand, not speculation. Alternative energy technologies are another matter, of course.
Even if electrics did start taking a significant share of the car market, it’s not something that would happen rapidly.
Plenty of time to adapt if and when EVs become popular without major subsidies.
Hehe… The most popular electrics by far is the battery-electric bicycle. In 2014, China estimated 200 million on their roads… the Germans last year bought about 720,000… Today in “bike-friendly” the Netherlands, one quarter of all their bikes now ride with a power-assist. Cities and countries all around the world are now throwing money at electric bikes and trikes as tax incentive/rebates for purchasing. As of last February, Sweden is subsidizing the purchases of electric bicycles by 25%, up to a maximum of 10.000 krona (€1000)… In Canada, the city of Laval is offering a $400 subsidy to buy an electric bike. As book author Wm. Gibson pointed out, the future is already here but not evenly distributed. North Americans hope for a future with roads clogged with electric cars… So the same property damages, the same injuries and deaths, but in a more “eco-friendly” way. Good stuff… can’t wait!
On target, Gary!
This research might’ve taken as long to produce as the slime piece against Dr. Crockford; i.e. hours and days.
Amazing! Economists that do not understand market “bubbles”.
That claim is in there because they have “policy experts” helping the alleged scientists.
It’s all about scare words to hype fears of the ignorant and gullible.
What? This study is making no sense to me. The U.S. has vast deposits of shale oil and gas, let alone coal. If the prices of these commodities drops and we are using them, then our electricity is even cheaper. If fewer countries take these as exports, then we have more years of reserves. How the heck do these reserves ever become worthless short of regulated to death?
Do the authors of this study understand that much of the chemical and plastics industries require fossil fuels as feed stock for their production? Do we assume these industries disappear? Or are they concentrated in countries that have adequate reserves of raw materials thus enriching those nations?
I just read an article (Wall Street Journal) that stated that some shale oil fields can now remain profitable at $30 to $40 per barrel of production, while OPEC requires $40+, so how exactly does OPEC crowd out our local production? Shale oil production continues to become more efficient year-by-year using new techniques and technologies so “it ain’t going away”.
The only scenario I see where the U.S economy is slammed is one where a bunch of green lunatics legislate and regulate it into a self-made disaster.
A lot of the “cost” of shale was in setting up the infrastructure.
Most of that infrastructure is now in place.
Fracking existing Permian Basin wells and using Enhanced oil recovery with CO2 injection can produce oil at < $40/bbl. This is being done.
And getting it to an export market where it can compete with world traded Brent Crude is the problem. Pipelines are at capacity. Rail is at capacity.
Thus West Texas Intermediate (WTI) in Midland-Odessa is selling at a steep discount to Brent Crude.
Today, Monday morning, 4 May, WTI is $65.02 and Brent is almost $76, an $11/bbl differential. The problem is that the pipelines to push that crude to Houston for export are at capacity. Even getting it to tank farms in Cushing, OK is a problem.
Robert, you are correct of course. I think they mean that alternatively-generated energies are poised to become SO efficient, SO cheap and SO widespread, that only a moron would bother with fossil stuff anymore. Any day now.
Ah, the cushy life of not actually producing anything meaningful, with repercussions, or merit — academic armchair econometricians.
As correctly observed above by “knr”, there are a lot of useful products that can be made from petroleum as a feedstock chemical and from natural gas as a precursor molecule that don’t directly involve using them as energy.
Plastics, fertilizers, epoxies used in composites, oxidation to pure carbon to form carbon fibers from petroleum and natural gas.
Also valuable are Phenolics and benzenes from coal and coal tar (anthracene) and used are in modern technology (circuit boards, dyes, tracers, cleaning solvents in circuit board production).
And a carbon tax is just another hoped-for revenue stream for socialists to spend OPM in furtherance of their political power schemes.
This bloviation reminds me of a classic scene from The Princess Bride.
The predictions of economists are mostly a waste of breath/paper/bandwidth.
As my old dad used to say, never bet on the other man’s game.
But you have to admit, when it comes to tirelessly propagandizing for his cause, that weepy Bill McKibbon fella is one tirelessly dogged little prickly pear.
Development of anti-gravity technology will be even more disruptive! We should start careful planning now to minimize the coming collapse of the gravity bubble, to include divestment in bicycles, motorcycles, autos, airplanes, trains, horses, burros, mules, and carabao, lest they become valueless stranded assets. /s
One should take the gravity of this situation seriously……
I’m looking to invest in property less than 4 feet high, to protect myself from the vast damage due to low flying cars as we approach the now inevitable “tipping point”. I got my 97 Volkswagen almost a foot off the ground last week. Top speed and a speed bump! Good thing it doesn’t have air bags! Quite a landing! I was going 87 mph to avoid the other time travel “tipping point” at 88mph.
Funny
That’s only one part of it, you’d also need a flux capacitor and 1.21 gw of electricity to power it. 🙂
Great scot!
When I saw the title, I first thought that they’d jumped on the LENR (low energy nuclear reaction) bandwagon. However, it turns out to just be more green-swoggle.
….and that’s why they are all rich
the study confirms we should use the oil now before it becomes worthless.
This deserves a massive LOL, and kicking of ass out of institutions.
The provided mechanism:
technological change in the global power and transportation sectors -> dramatic decline in demand for fossil fuels in the near future -> fossil fuel asset written off -> huge “carbon bubble” built on long-term investments to burst
just doesn’t make economic sense, even if fossil fuel were turned to zero value (and they wont, they would still have chemical value). The value would just move to the substituting assets, and consumers, and the global value would increase.
Where does this BS come from?
Oh ye
“Detailed simulations”
“produced by an international team of economists and policy experts”
“Publishing their findings today in the journal Nature Climate Change”.
Because, that’s the place to publish some dummy stock market analysis, of course…
Go to Walmart and shop for an electric bicycle. It is way simpler to make an electric bike than an electric car. There should be a huge market for electric bikes if the were practical. Yet if anything the market shows the technology is still years away.
The Luna Cycle e-bike kit is $800 (and hard to assemble, lacking decent instructions). But it is given a positive review of its performance by Kevin Kelly (of Whole Earth fame), here:
http://kk.org/cooltools/luna-cycle-e-bike-kit/
I have an ebike that can go 50mph or 50 miles, moved to Denver which is flat and would much rather just pedal
Interesting that the study concludes: “China has a strong incentive to push for climate policies.”
Compare to the the often cited statement by DJT that climate change is a hoax pushed by China.
“China has a strong incentive to push for climate policies.”..in all other countries
+100
You left out Russia has strong incentive to push Germany for climate policies while selling them more and more gas.
Countries such as China and France that have no fossil fuels to speak of make a strategic choice to promote “green energy” so as to put competitor countries at an equal disadvantage in terms of energy cost. This is a real thing. Just like Russia trying to denigrate fracking to reduce productive competitiveness in the West.
It is stupid since higher costs elsewhere in the world reduce the capital surplus that would be available for investment in those countries, but nobody ever accused either of those countries of an acute understanding of free market economics.
Check out Paris shale.
https://oilandgas-investments.com/2010/investing/the-paris-basin-oil-shale-play/
China has a strong incentive to sell solar panels to gullible halfwits.
The panels are constructed using energy from coal.
It is precisely the miscalculation of market shifts, policy mistakes, and the misallocation of resources and investment that leads to short-term shortages and resource price spikes. At least we have more efficient markets today compared to the 70s and 80s to sort through these issues. Governments and advocacy groups have learned nothing. They still play by separate rules of engagement with media spin to reinforce their mistakes and prolong the distortions.
I’m beginning to wonder why the left now speaks of “carbon” instead of carbon dioxide. Is it their intent to demonize all carbon and stir up the uninformed populace against it? Carbon is in pencil leads, diamonds, plastics and makes up 18% of our human bodies as well as most other living things. Its part of DNA. Are they really trying to turn people against all living things? There is probably a huge supply of dingbats on the left who would go along with it.
It’s not that complicated. For carbon, think soot, black, stuff scraped off the inside of the chimney, ick and yuk. Bad. Much scarier than a colorless odorless benign gas that feeds plants. Not so bad, good even. So the alarmists concentrate on all the “bad” correlations in our minds. The same reason when they criticize power plants, they always show the steam billowing hugely out of the cooling towers, rather than the modest and barely visible effluent coming out of the combustion stacks. And they call it all pollution.
“I’m beginning to wonder why the left now speaks of “carbon” instead of carbon dioxide.”
The innocent explanation is that it is an umbrella term that encompasses methane (and a few other minor actors) too. The Guilty explanation is that it is a “boo word” because of its connotation of “soot.”
In their dreams.
The gentleman and ladies at Cambridge appear to be living in an academic bubble, a CAGW echo machine.
Green energy does not work if ‘work’ is defined to be the significant reduction in anthropogenic CO2 emissions.
It does not matter (except for the billions and billions wasted) as the planet has started to cool.
UK
http://www.cityam.com/285893/mps-warn-dramatic-collapse-clean-energy-investment-reaches
https://www.technologyreview.com/s/601514/germany-runs-up-against-the-limits-of-renewables/
Germany. Same story for Australia, Denmark, and so on.
I predict a stock market crash also, when interest rates rise uncontrollably. ‘Quantitative easing’ (government creates more money to ‘stimulate’ economy) just pushed the can down the road.
Any sane economist would conclude that it is wind and solar that are in a bubble, but they are so small that it would more accurately be described as a popcorn poof.
I’d describe it as a whoopee cushion.