Study shows how much coal, oil and gas must stay untouched to solve global warming

פורסם: 12 בינו׳ 2015, 13:16 על ידי: Sustainability Org   [ עודכן 12 בינו׳ 2015, 13:19 ]
In this Nov. 27, 2014 photo, workers load coal from a truck at a process station for sale in Tangxian in China's Hebei province.

In a study that has sweeping implications for policymakers, energy companies and even individual investors, scientists have found that if we are to have a decent chance of limiting global warming to below "dangerous" levels, then more than 80% of current coal reserves, half of all gas reserves and a third of oil reserves must remain unburned through at least 2050.

The study, published Wednesday in the journal Nature, is the first to quantify the implications for each type of fossil fuel as well as different regions, from the Middle East to the United States, if we are to meet the globally agreed upon temperature target of keeping global warming to less than 2 degrees Celsius, or 3.6 degrees Fahrenheit, above preindustrial temperatures through the year 2100.

The big losers, according to this research, include Russia, which could only burn 59% of its existing natural gas reserves and 25% of its oil reserves, as well as Canada, which would have the lowest utilization of its oil reserves of any country analyzed.

Carbon Budget

The amount of CO2 emissions that are consistent with having a decent chance of meeting the 2 degree Celsius temperature target, compared to emissions from all energy reserves.

Image: Bob Al-Greene/Mashable

Furthermore, the study's authors say that any development of Arctic oil and gas resources is "incommensurate" with already agreed upon climate targets.

Global climate negotiators are slated to meet in Paris in 2015 to negotiate a new climate treaty that would likely be aimed at putting the world on course to meeting the temperature target, starting in the year 2020.

The study means that the way that energy companies currently do business, which includes making spending hundreds of millions per year to find new oil, gas and coal reserves, is incompatible with solving global warming.

This conclusion, if it is correct, could affect any investor who holds stock in energy companies
This conclusion, if it is correct, could affect any investor who holds stock in energy companies, from major players like ExxonMobil and Shell to smaller companies that are involved in the natural gas "fracking" boom in the U.S. This includes millions of people who hold mutual fund and index fund investments.

Such stocks are common in most retirement plans in the U.S., since energy companies are among the largest members of the S&P 500 index on the New York Stock Exchange. Shares in such companies could decline in value — possibly in a rapid fashion — if energy firms are unable to burn their existing reserves due to climate policies aimed at reducing emissions of planet-warming greenhouse gases.

According to the study's authors, Christophe McGlade and Paul Etkins of the University College London, oil companies spent a total of $670 million on exploring for new energy resources in the year 2013 alone.

"One might ask why they’re doing this when there’s more in the ground than we can afford to burn, and that money might be better spent," Etkins said at a press conference. Etkins suggested that companies return such funds to shareholders in the form of dividends, or use the money to invest in renewable energy research.

The carbon budget limits what we can burn

In order to meet the 2 degree Celsius temperature target, the world can only emit a cumulative total of about 1,100 gigatonnes of carbon dioxide between 2010 and 2050, according to the new study and work from the U.N. Intergovernmental Panel on Climate Change. Yet, if all the current fossil fuel reserves were to be burned, emissions would be at least three times higher than this level, like a teenager spending on their parents' credit card.

The study used a computer model to determine the most economically efficient ways of burning fossil fuel reserves while staying under the budget limit. These economic calculations help explain why the study shows such low utilization rates for Canadian tar sands oil resources in Alberta, since they are comparatively much more expensive to access and more carbon-intensive than U.S. oil and gas from states like North Dakota and Pennsylvania, for example.

Unburnable Carbon

Image: Resources we can't burn through 2050, according to a study in 'Nature.' This is based on a scenario without carbon capture and storage technologies.

The study, which includes many assumptions about future energy prices, emissions and the sensitivity of the climate system to additional greenhouse gases, shows the U.S. could continue to burn most of its domestically-sourced oil and natural gas through 2050. In the past few years, the U.S. has vaulted into top place as the world's largest oil producer, which is an unexpected development that has upended global oil markets.

It is believed that there are vast deposits of oil and gas stored under the Arctic seafloor, and with global warming making the region more accessible, oil and gas companies are aggressively seeking contracts in the Far North. However, such ventures are only economical if world oil prices are high, which they currently are not, and the study says that any new finds in the Arctic can only be exploited if previously known reserves elsewhere are left untouched.

McGlade told Mashable

the countries that will be hurt the most by the carbon budget constraints are those that are heavily dependent on coal
the countries that will be hurt the most by the carbon budget constraints are those that are heavily dependent on coal, which is among the most carbon-intensive fossil fuels. “It’s companies and countries that hold large coal reserves that are going to suffer under a 2 degree scenario, and also the Arctic oil,” McGlade said.

For example, McGlade said that meeting the temperature target in the most cost-effective way means foregoing the exploitation of 80% of the world's coal reserves. Over the past few years, coal has become more expensive in many countries, including the U.S., compared to natural gas, thanks to fracking technologies that have produced a glut of gas.

Energy industry may not be getting the message

Despite a growing awareness that much of the oil, coal and natural gas in the ground may become so-called "stranded assets," energy companies are taking vastly differing approaches to hedging such risks. Some, including the largest oil company, has been ignoring the risk altogether.

In a report released in March 2014, for example, Exxon Mobil told its shareholders that it plans to burn all of its existing oil and gas reserves, and foresees no climate policies that would affect its plans until 2040 at the earliest.

Regulators, though, are increasingly interested in this topic. Late last year, the Bank of England revealed that it is investigating whether fossil fuel assets, such as coal and oil, pose a financial stability risk because many of these resources would need to be left untouched in order to meet internationally agreed-upon climate goals.

Vanguard, which is the largest mutual fund company in the world, with nearly $3 trillion in assets under management, told Mashable that most of its investors have relatively limited exposure to fossil fuel industry risks. "It's likely that there is energy sector exposure across our fund lineup," said Vanguard spokesperson Emily White. "However, most (73%) of our 401(k) plan participants invest in broadly diversified balanced funds," she said, citing 2013 data. "So even if their funds have energy exposure, the wide diversification within the fund mitigates their risk to any particular company, sector, or segment."

According to McGlade, both energy companies and investors need to change their way of doing business. “If actually there is strong climate policy coming through, then you might see investors seeing fossil fuel companies as too risky,” he said. “There are quite strong implications here for the fossil fuel companies themselves … but also for the investors that are investing in these companies, they have to be aware of these risks and might need to be prepared to move their money elsewhere.”