Falling prices for renewable energy and rising investment in low-carbon technology could bust oil and gas giants and spark a global financial crisis, according to a study, which predicts a slump in fossil-fuel demand by 2035.
The “carbon bubble”, meaning oil and gas assets that could be regarded as overvalued, could lose US$1-4 trillion in value by 2035 if demand slumped, an article in the journal Nature Climate Change argued.
The resulting “carbon bubble” could cause losses larger than the 2008 financial crisis, with the US and Canada the biggest losers, the study said.
It said the trend was no longer dependent on government subsidies or climate policies.
Advances in technology for energy efficiency and renewable power combined with falling prices were now responsible for the movement to renewables, it argued.
There has been a growing movement for divesting from shares in fossil-fuel firms in recent years but the sector still accounts for 6 per cent of global stock markets and 12 per cent in the UK.
Lead author Dr Jean-François Mercure of Radboud and Cambridge universities told the media: “This is happening already: we have observed the data and made projections from there. With more policies from governments, this would happen faster. But without strong policies, it is already happening. To some degree at least you can’t stop it. But if people stop putting funds now in fossil fuels, they may at least limit their losses.”
The International Energy Agency said the world invested around US$700 billion in oil, gas and coal in 2016.
Mercure said the energy giant would probably fight among each other for the remaining market, rather than transition into renewable energy businesses.
Co-author Professor Jorge Viñuales said: “Contrary to investor expectations, the stranding of fossil-fuel assets may happen even without new climate policies. Individual nations cannot avoid the situation by ignoring the Paris [climate] agreement or burying their heads in coal and tar sands.
“Many investors don’t take the carbon bubble seriously, they say that climate policies won’t be adopted, and if they are adopted they won’t be tough and even if they are tough they won’t be adopted anytime soon: what we are saying is, that doesn’t matter.”
But the study warned this process was happening too slowly to keep global temperatures within 2°C above pre-industrial levels, which was the limit set under the 2016 Paris deal.
Nature Energy forecast that global energy demand would be about 40-per-cent lower than today by 2050, allowing the world to stay within the 1.5°C goal set at Paris.
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