When the bubble hits the fan…

This article by Will Hutton in the Observer was long overdue. Burn our planet or face financial meltdown. Not much of a choice” – yep, that just about sums it up. (For a more exhaustive treatment of the same subject, see also this long article by Duncan Clark, co-author of “The Burning Question”.)

Among the wondrous wheezes of accountancy, as practised by multinational companies of the fossil fuels variety, is the notion that identified “reserves” of coal, oil or gas can be counted on the plus side of the balance sheet. In other words, all that CO2 which is safely locked away underground can be valued as though it had already been extracted, processed, sold, distributed, burnt, and – quite incidentally – pumped into the atmosphere. Not only that, but this hitherto admitted fiction has some Very Big Numbers attached to it. Numbers with twelve zeros, and they’re dollars – definitely not peanuts.

Now, if someone were to come along and say, “Hey, man, all that shit has to stay in the ground,” the accountants would be horrified. “But… but that means writing off assets!” they would stutter, incredulous. Quite so. And under the impact of those Very Big Numbers, the balance sheet would crumble into a worthless pile of disparate figures like the screen of a computer struck by a nasty virus.

We might then be tempted to chortle with satisfied schadenfreude (well, I certainly would) but unfortunately things are a tad more complicated than that. Take pensions, for example. As Damien Carrington points out in this article:

Pension funds are also concerned. “Every pension fund manager needs to ask themselves have we incorporated climate change and carbon risk into our investment strategy? If the answer is no, they need to start to now,” said Howard Pearce, head of pension fund management at the Environment Agency, which holds £2bn in assets.

The so called “Carbon Bubble” is also making news down under.

An increasing number of countries that import Australian coal, such as China, are tightening their belts on coal use. This means that investments into Australian coal that may seem sound at the moment could easily turn into stranded assets that cannot be sold in a world acting on climate, with the cost of alternative energy falling. (Carbon Tracker report)

The fossil fuel industry is “too big to fail” – but fail it will. And the few hundred billion that were needed to bail out the banks will pale into insignificance, a mere fraction of the trillions written off for assets which have “suddenly” become worthless.

When? Well, I think it will hit the fan before the end of the decade.

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