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.
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The study: https://www.nature.com/articles/s41558-018-0182-1
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Do they even understand what an economic bubble is?
An economic bubble exists when the market value of a product (the artificial value) is much higher than the true intrinsic societal value of that product. Now correct me if I’m wrong, but it appears to me that the entire value of fossil fuels is accounted in their energy density which society uses for everything, considering everything relies on transportation.
What exactly do they imagine is driving an inflated artificial value over its intrinsic value? Is it government mandates on all levels dictating that large percentages of energy come from fossil fuels? Nope, that’s renewables. Is it subsidization, where each unit of energy sold at retail is paid for using tax dollars in order for the seller to make any profit? Nope, that’s renewables.
Gee, it sounds like it’s the exact opposite to me, where renewable energies are the market that has a high artificial value compared to their intrinsic value. This will become even more evident than it already is to us here as wind farms are already reaching their expected life expectancy, and the industry will have an even more difficult time taking new market share while keeping what it already has. And the EV market is completely dependent upon the lithium market — I wonder what their simulation showed about lithium prices when the EV market had to expand by 20,000% in order to make up for their simulated oil market crash. Or electricity prices for that matter when the ca. 30,000,000,000 gallons of daily fuel supply disappeared and everyone was charging their vehicles instead. Maybe their model assumed infinite lithium and unicorn farts powering the grid.
But ignoring the alternatives, is the fossil fuel market a bubble? Are they claiming that the ca. 1.4 million kilocalories, countless plastic products, and pharmaceuticals in a barrel of oil is not worth $60-70 and is somehow being inflated by some societal level fervor to get their hand on them? On what grounds can they make such an absurd claim, when the system of energy gathering and distribution is so efficient that the average daily wealth of a person has gone from three loaves of bread per day to thirty loaves of bread per day since its becoming the backbone of the economy?
Well it actually says in the abstract. Their entire paper is built upon the assertion that “current low-carbon technology diffusion, energy efficiency and climate policy may be substantially reducing global demand for fossil fuels1,2,3,4.” And their four citations supporting this assertion — all from UN organizations involving renewable energy. So their entire paper is engendered from UN organization pamphlets, not a peer reviewed publication nor from an energy industry review such as BP.
Meanwhile back in reality, global oil consumption will soon surpass 100,000,000 barrels per day, natural gas consumption will surpass 125 Trillion cu. ft, and coal consumption is steady at 3.75 billion tonnes oil equivalent.
Baghdad Bob is alive and well and is a faculty member at a well-known UK university.
RWT is on the right track here. It’s like Groundhog Day, with the same flawed logic coming around again and again. It was figured out in 1850 as Jevon’s Paradox, applied to coal.
As the price of an energy commodity decreases, the marginal use cases increase. Often it is not a linear relationship – a 10% decrease in price of fuel could spark a +20% increase in demand, as the energy value is leveraged to create profit.
This is the conundrum for renewables – every unit of energy they produce reduces the price for an equivalent unit of fossil fuel, making FF cheaper and better able to compete with the renewable for new applications. This stalls the spread of applications for renewables and explains why they have not had the market penetration predicted.
Robert Noyce, co-founder of Intel, was fond of saying that a true revolution required a 10X improvement in performance/cost/value. Anything else was just incremental improvement and would not change the fundamental market dynamics. Renewables are currently in the -X improvement range.
Also known in classic economics as supply and demand, with the price action always at the margin. It is as inevitable as any normal human interaction.
Is this the RW turner from “C” Engineering in Edmonton?
“China and many EU nations currently rely on high-cost fossil fuel imports to meet energy needs. ”
I didn’t look for other lies cause the article is mostly about stupid predictions. however the above comment stood out. China has the 3rd most proven reserves of coal in the world and they are the highest producer of coal. They are financing coal plants all over the world so that they can sell their coal. This is actually a good thing cause it will put more CO2 in the air NOT less.
Aircraft will be the last to move away from fossil fuels or at least hydrocarbon fuels as these fuels have the most energy per mass and volume making all other alternative significantly more expensive to implement. Railroads will also not move from fossil fuels until electrification of the entire rail system becomes a reality. Not easy to do in the US, especially the west.
Automobiles used for inner-city transportation could be electrified, but at great cost and a significant increase in production and delivery capacity of electricity to those areas. Cost competitiveness with hydrocarbon fuels will still determine what source of energy prevails (assuming the government doesn’t mandate a solution). And in terms of air pollution, current emissions regulations already make gasoline and diesel vehicles cleaner than ambient air so there is no reason to change fuel and energy sources to “clean up the air”.
As long as there is ample crude available, it will dominate the transportation sector in terms of energy supply.
The efficiency of new coal-fired power plants in Germany is around 35 percent. Wholly new ones create 38 percent. Line losses in Central Europe are about 6 percent, in the United States 10-12 percent due to older and longer lines. Nuclear power brings it to 75 percent, the star of the “renewable”, the hydropower to 35 percent.
Wind power has an efficiency of 4%, solar power 1.6%.
The more “renewable”, the less energy-efficient the generation.
http://www.pnas.org/content/early/2015/08/18/1408251112
Actually, the efficiency of production makes it clear what a huge mischief “renewable” energy is. Especially if one assumes that one day they will take over 100 percent of the energy production.
Fossil fuels becoming “stranded assets” is so far into the future considering how widely they are incorporated into every nook and cranny of modern life it’s a fool’s bet. When oil/gas supplies starts to wane with a true “peak” coal will become the primary carbon energy and manufacturing source. We have centuries of fossil fuels remaining for man’s use and centuries to develop replacement energy sources. Right now wind and solar are not replacements. Only hydro and nuclear can provide it. ‘They’ know it and want to stop its’ use so ‘they’ can gain energy control and stop the West’s prosperity.
As I understand, the prediction of doom has shifted from running out of oil, et al, to having so much that prices will fall. I find that amusing. I also doubt that demand will fall much simply because there are half a billion Indians, half a billion Chinese, and probably a billion Africans/ non-Chinese Asians who currently use comparatively little carbon fuel or plastics but who would love to do sO. As their economic circumstances improve, and -if prices really do start to fall- they are waiting in the wings to absorb all the excess production capacity that the first-world has.
It’s a very parochial view of the world to think that if the French start driving only electric cars in 2030, demand for oil will slump.
Correct. But “parochial” falls far short of the reality. “Abysmally stupid” is a little closer, but not much.
“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.”
But the momentum toward BEVs like Tesla’s depends greatly on subsidies (e.g., Tesla’s high sales in high-subsidy Norway vs. its much lower sales elsewhere in Europe). Further, Mazda (search for “SkyActiv-X”) and GM will be within a year with gasoline engines that are 30% more efficient (and therefore as “green” all things considered as a BEV). And Bosch promises a near-zero-emissions (except CO2) diesel soon, which it will license. (See http://bit.ly/2I1MRC1.) These will blunt the BEV momentum. So will improved hybrids coming from the Toyota/Mazda factory in Alabama, due in two years.
They suggest that if renewables like wind and solar become cheaper than fossil fuels then demand for fossil fuels will fall. And thus the price of fossil fuels will fall.
That seems reasonable.
However, they then note that the market isn’t factoring in a price cut in fossil fuels. From which they conclude that the market is making a mistake. All the experts in the city can’t possibly know more about the subject than authors in the esteemed journal Nature Climate Change.
That does not seem reasonable.
There are a lot more people who have correctly predicted the failure of renewables to compete with fossil fuels so far. And they are getting paid a lot more for their proven expertise than these academics.
A far more reasonable conclusion is that fossil fuels will continue to out-compete renewables for the foreseeable future and thus investing in wind and solar is just throwing money away.
China, India, and Japan are not building fossil fuel power plants only to stop feeding them a decade from now. Only government regulation can drive the EV economic bubble train these folks are on about.
This latest paper calculating the influence of CO2 on temperature is getting closer to the mark, practically zero effect.It gets better every day. As earth cools during the current phase the accuracy of this paper accelerates.
Note that sea ice volume in the Arctic is now above the 2014 level and close to the mean value.
Regards
http://notrickszone.com/2018/06/04/atomic-physicist-human-co2-emissions-have-an-equilibrium-climate-sensitivity-of-a-not-important-0-02-k/
http://ocean.dmi.dk/arctic/icethickness/images/FullSize_CICE_combine_thick_SM_EN_20180603.png
The stock market has no interest at all in climate change and carbon whatevers. People are making money and losing money and spending money and investing money.
Climate change just never gets brought up at all.
It is obvious this report is design to scare the investors of the large pension funds. They are the ones with the biggest bucks to invest in fossil fuels. Certainly don’t buy all the arguments they make.
Steel is cheap and no one says good let’s takes advantage of cheap steel. If oil is cheap the same logic says don’t take advantage of it. There must be entrepeneurs out their keen to turn a good profit from cheap steel and oil and so keep the price from collapsing too much while developing the world more quickly. Who are the blockers?
So let me see if I can get this right:
1. Global warming will heat the planet.
2. Global warming will cool the planet.
3. Peak oil means we will run out of oil.
4. We have too many fossil fuels which will lead to fossil fuel asset stranding.
5. The answer to 1-4 is give the government control of the means of production.
To quote Lewis Carroll: “Contrariwise, if it was so, it might be; and if it were so, it would be; but as it isn’t, it ain’t. That’s logic.”
JR
Show me the cheapest available energy and I’ll show you the money! Have you any suggestions for a substitute to fossil energy? Cheapest AND available when needed of course.
The authors should publish a list of stocks, prices, and dates for investors to buy and sell.
That is how other people claiming to know the market are judged.
Doesn’t even have to be a .pdf. A simple text file will suffice, please, Cambridge.
Aw, come on you guys. The esteemed professors must have said something right in this article.
The only thing that can trigger such event is nuclear fusion and in 2035 many of production units of all sized will be operational
curiously, nuclear fusion is not mentioned, well well well
I commented here early in the discussion …..when there were no other comments visible, I think, but it just vanished with a System Error 500
HELP!
Hi folks! What’s going on? I see duplicate copies of the same WUWT email showing up in my email inbox now. Anybody else seeing this problem?
Dictionary police: Prevaricating??? Maybe they meant procrastinating?
Meanwhile, ignore the $1 trillion student loan bubble that has financed nonlinear patriarchal cisgender antitransfluid bathroom power dynamics studies, safe-spaces, and idiotic “detailed simulations” like that in the opening post.
China is not manufacturing renewables to reduce pollution.
Are they ‘short selling’ fossil fuel stocks, hoping to buy them back cheaply?
ROFLMAO!!
stocks will crash hard but it isnt carbon..its the banksters and their dodgy dealings and debt levels of people overindebted to buy bitcoin and shares and houses that going to go whoosh sometime soonish according to many pundits 2007/8 all over again.
throw in mideast n china etc for extra whammy value