TD Fall Investing GuideTD Fall Investing Guide
http://www.canadianbusiness.com (© Rogers Digital Media 2014, All Rights Reserved.)
Updated: Tue, 22 Apr 2014 08:00:00 GMT | By Michael McCullough

Why the "Carbon Bubble" is the third rail of climate change politics

Good luck convincing ExxonMobil to leave 80% of its oil in the ground


Smokestacks

(Thawt Hawthje)

The big issue around climate change that "nobody's talking about" is whether oil and coal companies are prepared to write down 80% of their reserves. So declared Jules Kortenhorst , CEO of the Rocky Mountain Institute , a Colorado-based green-energy think tank, in a panel on "The Global Energy Mix" at the Globe 2014 conference on March 28 in Vancouver. Well, it just so happens people are starting to talk about it-and it's exposing a yawning gap between two worldviews affecting the way the world responds to the climate change challenge-not least within the energy industry itself.

At issue is what's become known as the "carbon bubble." As reiterated in the Intergovernmental Panel on Climate Change report issued on March 31 , scientists estimate that we can emit no more than 500 gigatonnes of carbon dioxide in order to limit the increase in global temperature to just 2 degrees C by 2100 (and governments attending the successive climate summits have agreed in principle to this objective). That's equivalent to burning just 20% of the fossil fuel reserves already on the books of companies and nations that disclose them.

This is the impasse the industry stands at: while nearly all players acknowledge the need to deal somehow with climate change, none are prepared to leave four-fifths of their product in the ground, unsold. If they extract and sell it, the 2-degree limit is toast; if governments somehow muster the will to force them not to extract those reserves, then the companies’ valuations must drop accordingly-the bursting of the carbon bubble.

ExxonMobil, the world's largest publicly traded energy company, made it clear where it stands the same day the IPCC report came out. Releasing a report responding to Ceres -a group made up of institutional investors which has for years been pushing resource companies to disclose their carbon bubble risks-Exxon vice-president of corporate strategic planning William Colton said, "All of ExxonMobil's current hydrocarbon reserves will be needed, along with substantial future industry investments, to address global energy needs." So, although "the risk of climate change is clear and the risk warrants action" (in the form of greater energy efficiency and emissions-reducing technology), the big oil company will not be writing down any of its reserves. It intends to extract and sell every last drop.

That was also the gist of Enbridge boss Al Monaco's response to Kortenhorst on the Globe panel. "When you look at energy demand, we're going to need fossil fuels until at least 2050," he said. While drawing attention to Enbridge's investments in renewable electricity, he insisted that renewables can't supply more than 20% of the demand because of their intermittency.

"Baloney," Kurtenhorst shot back. "This is the single most consistent fairy tale that is spread around." Let's just say it was more entertaining than your average dry conference panel.

The likes of Exxon and Enbridge, therefore, have as much as admitted they have no expectation or intention of adhering to the 2-degree limit established by international convention. So a note to all those armchair environmentalists encouraged by European-based big oil companies' (Shell, Total, BP, Statoil) willingness to take the carbon bubble seriously: when the rubber hits the road, other, more powerful voices in the industry aren't going down without a fight.

More stories from Canadian Business

Connect with Canadian Business

Scroll upScroll down

Recently recommended stories

advertisement