Wednesday, May 15, 2013

Unburnable: Risky Fossil Fuel Investments Vs. Climate Crisis

Two new reports say climate change could cause the next financial crisis. From London, Bob Ward, LSE lead author of "Unburnable: Carbon 2013: Wasted capital and stranded assets." From Australia's Climate Institute, John Connor on coal's risky future. Plus Nancy LaPlaca: why does sunny Arizona burn so much coal? Radio Ecoshock 130515 1 hour.

Could climate change bring us the next financial crisis? Yes indeed, say two new reports. We'll go London to get the low-down on the new report from the Grantham Institute of the London School of Economics. Find out why big institutions like Citi Group, HSBC, the World Bank and the IMF agree: fossil fuel companies have developed a huge bubble based on carbon reserves they can never burn.

Pay attention. Your pension funds and banks are heavily invested in the next financial crash. Everybody is.

From the Canadian Tar Sands to Australian coal pits, energy companies are loading up with yesterday's fuel - until the climate crunch, which is already arriving. John Connor of the Climate Institute says the coal industry is ripe for financial implosion.

I'll wrap up with a quick answer to another bothersome question: why is the super sunshine state of Arizona still burning so much coal? With Nancy LaPlaca.

Remember the few people who tried to warn the world about the mortgage bubble. This is that show for you.


Listen to/download this Radio Ecoshock Show in CD Quality (56 MB) or Lo-Fi (14 MB)

Listen to/download the interview with Bob Ward, Grantham Institute of the London School of Economics (24 minutes) in CD Quality or Lo-Fi

Listen to/download my interview with John Connor, Executive Director of the Climate Institute in Australia (19 min) in CD Quality or Lo-Fi

Listen to/download the interview with Nancy LaPlaca on solar vs. coal in Arizona (12 minutes) in CD Quality or Lo-Fi


Any intelligent observer can see we are on a collision course between increasing mega-projects to produce even more coal, oil and gas - and the developing disaster of climate change. Either we make adjustments to our energy system, or we risk trying to live through the planet's sixth great extinction event, without going extinct ourselves.

Why do so many investors, likely including your pension fund, bank, or government - keep pouring billions and billions of dollars or Euros into a fossil fuel industry which has no long-term future? Everybody's making big money - but is it a bubble?

No one doubted the strength of the American home mortgage market, before that fell apart in 2007. It almost took down the whole financial system. But can we really believe the most profitable companies in the world, the oil and coal industries, could collapse?

The climate threat to our financial markets and civilization is no longer a subject just for radical greens. There are ripples of concern right at the core of the largest trading systems, echoed by some of the world's biggest financial institutions. Some say the carbon bubble could bring on the next crash.

In January of 2012, a well-regarded list of power players wrote the British Governor of the Bank of England, warning the London exchange was at the top of a fossil fuel bubble that could break with disasterous consequences. Now Lord Stern and a team of analysts have released a new policy paper that explains the risk.


Bob Ward, Grantham Institute, LSE

In the spring of 2013 stock markets hit new highs. Leading the pack were the most profitable companies in the world, the big oil, gas, and coal companies.

At the same time, polls showed the majority of the public believe climate change is real. What happens when these two opposites collide? According to a new report from leading economists, the carbon bubble will pop, leading to another serious financial crisis.

To explain, I've reached a lead author of the report, "Unburnable Carbon 2013: Wasted capital and stranded assets." Bob Ward is Policy and Communications Director for the Grantham Institute, at the London School of Economics.

This new report is hard to believe. How could big money makers like Shell, Exxon/Mobil and the rest, lead us into the next economic crash?

We talk about this "carbon bubble". I ask how would it compare to the 2007 bubble of U.S. real estate prices, and all the securitization based on those mortgages? Ward says it is smaller than that bubble, because that 2007/2008 crisis involved all the banks, which are central to everything else in our economy.

Still, the over-valuation of these energy companies is not a small problem. Ward tells me the oil, gas, coal, and coal mining companies account for about 20% of the London Stock exchange, and similar numbers for other stock exchanges around the world.

If investors wake up all of a sudden and divest in a panic, say after more rounds of climate-driven violent weather, that could bring a very serious crisis. The Grantham Institute and Carbon Tracker hope their report will give the market time to make the necessary changes over time, rather than in a panic, and avoid a really serious crash.

The ratings company Standard and Poors is looking at how to re-evaluate the energy companies, given the claimed reserves can never be burned. The International Energy Agency (IEA) and the World Bank are now adamant that climate change is a real threat to the world economy, and are looking at action based on this new report. Even banks like HSBC and Citi agree this is a serious problem.

We are told the Bank of England was warned in January 2012 that big reserves claimed by the fossil fuel companies were a threat to the British economy, and the huge UK investment and banking industry.

Almost all of us are invested in fossil fuel companies one way or another. Certainly pension funds seek those big dividends and stock prices. Insurance companies, even our savings are loaned out by banks to big energy corporations. We are all at risk.

Naturally, I was skeptical that governments will act at all. Right now it looks like we'll just burn all the fossil fuels and to hell with coming generations. Literally. Bob Ward doesn't think so. For one thing, climate change is already interfering with the oil, gas, and coal business.

Consider rising seas and violent storms when it comes to offshore platforms and refineries. Think of the oil industry impacts of Hurricane Katrina for example. We also heard from Louisiana just the increased heat and changes in water flows are affecting pipeline operations. And we're just at the start of all that.

Add on the huge costs to government of storms like Hurricane Sandy ($60 billion on an already stressed United States) - and there is just no way our society and economy can go on with "business as usual" - especially if the global mean temperature goes over 2 degrees hotter. At some point, we don't know when, Ward says society will act to try to save what is left of the climate we need to survive. Taking action is not a "political" matter. It's physics and climate science that is based on what we emit. End of story. The fossil fuel companies might as well stop exploration to push up the supposed value of their reserves - because we can't even burn what we have already!

With Carbon Tracker, the Grantham Institute looked at the "carbon budget" - the amount of fossil fuels we could still burn and have at least a 50% chance of staying below the two degree danger zone. It's not much - and nothing like the reserves claimed by these big corporations.

I saved one last question from talking with Bob Ward from the London School of Economics. It's technical financially. I didn't really get it - until I heard John Connor say the same. Big pensions, insurance companies and banks are investing in the whole stock market, without being able to separate out the phony balance sheets of fossil fuel companies. That's a core risk which could shake the whole system. Regulators and analysts, even the ratings company Standard and Poors, are looking for a new metric, a new way to invest in a real future.


John Connor, Climate Institute, Australia

Naturally this affects oil, gas, and coal producers around the world. Australia is the world's largest exporter of climate-damaging coal. Australian mining companies recently announced even more grandiose projects to mine and ship still more.

From Australia, I've reached John Connor. He is the CEO of the Climate Institute in Sydney.

In the Guardian newspaper April 28th, John Connor told journalist Damian Carrington that Australia's coal industry is, quote, "ripe for financial implosion". We discuss how this carbon bubble could burst, and the impact on Australian economy, and the world economy. Find the Climate Institute "Unburnable" report on Australian coal here.

During the interview, John recommended these web sites to follow up:

The Vital Few - a site aimed at accidental climate change investors. That could be any of us, as our banks, pension funds (called superannuation funds in Australia), and insurance companies invest heavily in fossil fuel companies. Find out if your are involved and what to do here.

Connor also recommends the Asset Owners Disclosure web site and listings. It shows which investment companies are backing the energy sources that will wreck out climate. Check it out.


The way I see it, Australia endures another few years of climate extremes, whether it's super fires, record heat and floods. Millions of people call for action, in time with an election cycle. That could bring a crash of coal company share-prices, or even a major bankruptcy for an Australian coal company. Impossible you say? Remember Bear Sterns and Lehman Brothers were invincible too.

Here in North America, the gas industry is frantically drilling more and more fracking wells, even though the price is lower than production costs. I assume it's a scam intended to generate more investment money. Is it possible the same is happening with Australian coal?

Not likely, says John Connor. Unfortunately, there is far too much real coal in the ground. As he says "the Stone Age didn't end because they ran out of stones." In the same vein, Australia won't run out of coal before the climate is absolutely wrecked.

The Australian government is subsidizing the coal boom with extra infrastructure, hoping to generate more jobs and tax money. The government, and the public, are addicted to coal revenues, especially in Queensland. It's pretty much the same picture in Canada with the Tar Sands operations.

The Climate Institute, along with Carbon Tracker, put out their own report on the impacts of Australian coal reserves, versus a change in market evaluation of companies. The big coal companies are quite aware that climate concerns may drive more demands for carbon limitations or carbon taxes. Perversely, this may drive them to get coal out of the ground even faster, to make more money before the market shifts against them. It's the coal rush, and Australian corporations have announced fantastic new plans for mega coal mines and a half dozen new coal shipping ports (some in the Great Barrier Reef!)

The Climate Institute report found two important developments. First of all, the majority of Australian coal companies are NOT owned and controlled by Australian companies. International investors, some from China, have taken over in many cases. This is also a risk: because international money can leave just as quickly as it came. That might happen because regulations in the home country of the capital means coal is no longer attractive. Or the money might move away for other reasons.

Secondly, the Australian coal expansion plans wrongly assume that China and other Asian countries will burn an infinite amount of coal. However, that leaves aside three key developments. China has put in a cap on coal use. China is investing heavily on alternative energy at the same time. Third, the Chinese public is demanding measures to clean up the air, and coal is the main pollutant. For all these reasons, Chinese importations of coal may slow down or even go into reverse. And that doesn't even include the growing awareness in China of the huge costs of climate change.

We are talking about Australia, but this applies to the multi-billion dollar expansion in the works for Canada's Tar Sands. Or the big money bet on Arctic drilling, or dangerous deep-sea drilling. If we look at the huge position of these fossil fuel companies on world stock exchanges - but these two reports say the whole world financial system is at risk, while we gamble on burning more and more fossil fuels.

Big financial institutions like Citi Bank and HSBC publicly admit we face a hidden risk with over-investment in a dead-end economy, based fossil fuels.

Honestly I feel some relief that people in the financial industry are finally talking about the danger investing in climate-killing fuels. When our wallets and bank accounts look as risky as Cyprus, maybe there will be a move out of the fossil catastrophe.


Nancy LaPlace energy activist, Arizona.

In the U.S. Southwest, the State of Arizona has more sunshine than anywhere. It should be the American capital of solar power. But instead big cities like Phoenix are powered by dirty coal. To explain this crazy situation, I've reached Nancy LaPlaca. Nancy was policy adviser to a state Power Commissioner, and now she's looking at taking a run for the Commission herself.

Last year about this time, I visited Page Arizona on the northern state border. I saw the Navajo Coal Power station belching out smoke. The EPA says it's a dirty plant, and needs new pollution control. There is a huge battle over the controls.

Complicating the problem, that Navajo plant contributes millions of dollars to the Navajo tribe. Lots of native Americans work either with the plant, or in the coal mines of Northern Arizona. Can we shut that dirty coal plant down, without tossing even more native Americans into poverty? LaPlaca says yes - because alternative energy produces three times the jobs compared to fossil fuels. There is plenty of sunshine - and wind - in Northern Arizona.

But "coal electrons" are dirt cheap right now. That's partly because of the economic slow down, leading to overcapacity of all kinds of energy. The neighboring state of Nevada is getting out of coal. That means they will purchase no power from the Navajo Coal Generating station.

At the same time, California is also cutting back on coal power. The Los Angeles Light and Power company will stop buying electricity from the Navajo station around 2015. Instead, they are signing contracts with solar power companies in Arizona.

California has a requirement to get about one third of it's energy from renewable sources by 2020. Arizona is far behind, going for lower requirements by 2025.

As always, the big power utilities have a monopoly, and don't want change or competition. Solar power can go up anywhere, and is closer to the user, so there are fewer transmissions costs and losses. Nancy says if the big box stores and commercial buildings start mounting solar panels, the Arizona utilities, which are mainly state-owned, would be in serious financial trouble. In my opinion, if they keep counting on coal, the energy source with no future, Arizona will be in big trouble.

Nancy LaPlaca has been going around Arizona giving presentation to explain the facts of climate and energy life. The Republican Party just issued a press statement calling her "an extremist" because she is calling for renewable energy. I ask you, who are the "extremists" who don't notice Arizona has warmed up over two degrees since 1950. The rains this past year were about one third of normal. The place is drying out and heating up - and coal is the way to go???

Check out Nancy's interview. It's a quick education on coal politics and the reality of new energy systems. Find Nancy's Facebook page, as she considers a run for the Arizona Energy Commision here.


I hope you got the big picture need for a financial reform that protects investors from the fossil fuel bubble. The balance sheets of big oil, coal and gas are swollen with supposed carbon reserves we will never burn. Because the planet will heat up beyond any capability for business as usual, long before the oil, fracked gas, and coal run out.

More exploration is pointless for these companies. Nature and the human enterprise demand a business plan to phase out the fossil fuel economy.

Thank you for supporting Radio Ecoshock, at our web site With the help of listener donations, I've created two new You tube videos, based on interviews from this show. Just search Radio Ecoshock on You tube, and select the filter "by upload date" - to get the latest. Feel free to pass those along to people who need to know.

The latest is this You tube video version of my interview with John Betts, on "The Age of Super Fires".

I'm Alex Smith. Let's do it again next week, as we meet the men who want to run the climate of the world.

We end this program with a tune from Political Songwriter, Folk Musician & Union Activist Smokey Dymny. It's called "Talking Global Warming."

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