Not a Fake Tweet: Fossil Fuel Companies' Balance Sheets Contain Toxic Carbon Assets

This is real and could affect markets more than a fake tweet. Oh, and the fate of the planet is at stake too. A new report shows that publicly listed fossil fuel companies hold more reserves than can be safely burned this century, and investors have not included this in market valuations of those companies.

Last July, Bill McKibben's Rolling Stone article introduced Climate's New Math to American readers. Carbon Tracker, the number crunchers behind that article, have now released a second report, Unburnable Carbon 2013: Wasted Capital and Stranded Assets, showing that publicly listed coal, oil, and gas companies claim reserves, which if developed would exceed the safe carbon limit to keep within anthropogenic change of 2 degrees C. The industry is not planning for a safe future. This is riskier than a false tweet, but the markets remain clueless.

The report calculates the "carbon bubble" that exists on the world's stock exchanges. The bubble is made up of surplus fossil fuel reserves that are equivalent to "toxic assets," because they reside on those companies' balance sheets and are part of the valuation of market capitalization, but contain real risks to investors that are not yet accounted for. 350.org's response was to start a divestment campaign at universities and cities, but more action is needed, and not just from college students and activists. Investors and fund managers must demand more disclosure and acknowledgement from the fossil fuel companies about how their sector plans to accommodate a livable future.

If this information goes viral it could potentially cause a market crash in the fossil fuel sector. A non-crash alternative "managed retreat" would require government intervention analogous to what happened to the investment banks following the 2008 market collapse. As depicted in Oliver Stone's Wall Street movie sequel, the Treasury Secretary convenes the top industry players and tells them that their market caps will be some percentage lower on Monday morning, a few of them may fail, but that if the industry as a whole is to continue and remain non-state-owned, they must acquiesce to the terms being offered. The terms in this case are agreeing to leave fossil fuel reserves in the ground beyond a certain threshold that would make the global climate unstable.

Carbon Tracker encourages fossil fuel companies to divert their reserve exploration budgets, totaling $6 trillion over the next 10 years, towards shareholder dividends, in order to prevent a mass exodus of investment dollars. Advocates of citizen's climate dividends of the non-shareholder-variety may find this ironic, but perhaps it's just another type of income stream that will materialize as the economy decarbonizes.

In 2008 there were zombie banks. Now there are zombie coal companies. Are electric utilities the next zombies? A report Disruptive Challenges released in January 2013 by the Edison Electric Institute describes how distributed generation could take down the electric utilities sector.

The report implies that for many utilities' current business models, every kilowatt-hour of rooftop solar is one less kilowatt-hour sold. Solar reduces peak load, which is the most expensive power, and an important area for many utilities' profit. A "death spiral" can set in, as ratepayers put solar panels on their rooftops, raising costs to other ratepayers, making solar more attractive, leading to more solar adoption, and eventually relegating the grid only useful for backup power. This may explain why the utilities want the carbon price revenue as a source of guaranteed income, when those funds really belongs to the people, not the utilities.

Carbon Tracker's methodology could also be used in the fishing industry, which seems to be putting itself out of business. The logging industry is another one, where clearcutting is wiping out the lungs of the earth at a time when carbon sequestration is so desperately needed. The companies in those industries are overestimating the Earth's finite resources and are therefore overvalued.

It's time for a correction. Anyone want to tweet about it?

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