A rethink in how markets value carbon-based fuel reserves is urgently required

In July the Carbon Tracker Initiative published a new report: Unburnable Carbon – Are the world’s financial markets carrying a carbon bubble? The report makes two basic points.

First we cannot burn all available fossil fuel reserves if we are to meet climate change targets. And second, this fact is ignored by financial markets, in which all fossil fuel reserves (including those that we will not be able to burn) add value to the share price of the companies that own them.

Can’t keep burning 

At the Cancun climate summit in December 2010, politicians agreed on the need to limit global warming to 2C.

Scientists at the Potsdam Institute for Climate Impact Research suggest that the carbon we can afford to release in the 40 years to 2050 to give us a good (80%) chance of meeting this target sits at 565 GtCO2e (billion tonnes of carbon dioxide equivalent greenhouse gases).

However, the Carbon Tracker Initiative’s report states that should all the fossil fuel reserves held by the top 100 listed coal firms and top 100 listed oil and gas firms listed be burnt, 745 GtCO2e would be released into the atmosphere.

Furthermore, the burning of all...

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