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Watch out resource investors — carbon bubble set to pop

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A new report says most fossil fuels must stay in the ground if the world's to meet its carbon targets — something you probably never heard from the resource companies you invested your super with. Guy Lane reports.

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Is the fossil fuel bubble about to burst?


YOUNG INVESTORS be warned to avoid the risk of accidentally doing something good in the world and most particularly, watch out for financial bubbles.

According to a report by the Carbon Tracker Initiative there is a new bubble about to burst: the carbon bubble.

A bubble is when an asset is increasingly valued more highly than it ought to be and, if the bubble is not deflated, it will burst and the value of the asset will go into freefall.

Recent bubbles include the peanut butter sandwiches called mortgage backed securities, that actually had something other than peanut butter in them — odorous excrement, to quote the movie Margin Call.



The report says that if the world’s Governments enact the climate change legislation that they have agreed on, then most of the world’s fossil fuels will need to be left in the ground.

Where is the bubble? The market capitalization of fossil fuel companies all around the world.

The initial report Unburnable Carbon 2013 was quickly followed by an Australian version co-written with the Climate Institute: Unburnable Carbon Australia’s Carbon Bubble.

The most worrisome fact of all is that this information is yet to permeate onto the balance sheets of major fossil fuel companies around the world.

Consider what that this new information might mean for the share price of, say, Xstrata — a company that boasts hundreds of millions of tons of coal reserves.

And consider what it also means to pension funds around the world that are exposing the aged of Australia to investments in fossil fuel companies who probably can’t sell their poison.

For a parallel analogy, consider the U.S. pension funds who sued BP after the Gulf of Mexico oil spill for failing to disclose the risks.



The Unburnable Carbon reports suggest that if this speculative bubble is not gently deflated, it could pop and precipitate a global crisis that would make the GFC look like a warm up session.

This author claims a name for this potential holocaust, the GFCC: the Global Financial Carbon Crisis.

The reports highlight another compelling argument that the world ‒ and that means you and I ‒ need to move on from fossil fuels.

Remember, the stone age didn’t end because we ran out of stones; so we don’t need to wait until all the oil and coal is gone before we move onto something better — like 100% renewable energy with storage.

For the investor, this is a clarion call to sell off your fossil fuel stocks and invest in companies that actually make the world a better place.

Choose companies that produce solar energy or  wind power or energy from the ocean; sell your BP and Woodside stock and invest in companies that grow oil that actually is ‘burnable’ and never runs out.

This economic argument runs in parallel with a position that says: just what were you doing investing in fossil fuels anyway?

Where have you been for the last fifty years since Charles Keeling first published the Keeling Curve showing the exponential rise in atmospheric CO2.



Have you never taken the short amount of time to understand the basics of climate science that were established in 1905 by Swedish scientist Svante Arrhenius in his book, Worlds in the Making?

For those who failed to pick up that something is going on here, consider the scale of our global predicament.

Carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O) are three naturally occurring ‘greenhouse gases’ and, between them, they comprise just a poofteenth of the gases in the atmosphere.

However, unlike nitrogen and oxygen, which comprise over 99 per cent of the atmosphere, the three greenhouse gases are unique because when they are exposed to infra-red radiation (heat) they change their dipole moment.

In other words, they absorb and radiate heat.

Most gases don’t trap heat, but some do — and you only need a tiny pinch of greenhouse gas to keep the planet warm.

Human civilization has developed in the last ten thousand years with a warm planet and climate scientists fear for the stability of our highly complicated global civilization if it gets too hot.

Burning fossil fuels releases CO2, which is not a terribly nasty greenhouse gas per se (nitrous oxide is 300 times worse), but we humans pump vast quantities of it into the air — about 30 billion tons per annum.



The world’s governments are committed to limiting emissions of greenhouse gases so that the planet gets no more than two degrees hotter than would otherwise have been.

Two degrees doesn’t sound much, but it is sort of like electing to shoot yourself in the head with a .22 calibre pistol instead of a .45, because you want to reduce the chances of dying.

Committing the planet to any additional warming is adding heat to a global climate that has plenty of natural variability already built into it and was just right to start with.

Remember the old adage: if it ain’t broke, don’t fix it?

The upshot of all this excitement and predictions of carbon doom is that now is a good time to consider changing your views on fossil fuels as investments — before the bubble pops.

I understand that this might all come as a bit of a shock, but if you are not ringing you stockbroker right now to check whether the bubble has already burst, consider your underlying motivations.

You don’t want to be like the guy at the Climate Summit who turned to his mate and said:
 “What if it’s a big hoax and we create a better word for nothing?”

ClimateCartoon

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