Gwynne Dyer: Looming carbon bubble means both financial and physical meltdown

There are, we are told, only two options.

Either we stop burning fossil fuels before our carbon dioxide emissions drive the planet’s average temperature up a full two degrees C, in which case we will push the world into the biggest-ever recession. Or we continue to burn fossil fuels and push the planet into runaway warming, with lethal consequences for a large part of the human race.

The 2008 bank crash that triggered the recent recession was caused mainly by reckless investment that created a “bubble” in house prices. When the bubble burst, hundreds of billions of dollars’ worth of investments suddenly became worthless. The losses were so great that they nearly brought the whole banking system down.

This time the problem is a “carbon bubble”. The market valuation of the world’s 200 biggest oil, gas, and coal companies is about $4 trillion, a figure based on the assumed value of their confirmed reserves that are still in the ground. Or, more precisely, a figure based on the assumption that they will eventually be able to sell all of those reserves to customers who want to burn them.

On the strength of that assumption, the fossil fuel companies have been able to take on $1.5 trillion of debt, and last year alone they spent $647 billion in the search for even more oil, gas, and coal reserves. But what if they will never be able to sell all of their reserves? What if the need to avoid runaway warming forces governments to curb the burning of fossil fuels, so that much of those reserves has to stay underground forever?

This is the focus of a new report titled “Unburnable Carbon 2013". The report’s authors, the Grantham Research Institute at the London School of Economics and the Carbon Tracker Initiative, have the support of organizations like the HSBC and Citi banks, the Standard and Poor’s rating agency, and the International Energy Agency.

Their conclusion is that if we are to have a 50 percent chance of stopping the warming before +2 degrees, then at least two-thirds of the currently listed fossil fuel reserves will have to stay in the ground permanently. If they cannot be burned, then they have no economic value.

Therefore, the market valuation of the fossil fuel companies is three times higher than it should be.

The report assumes that rationality will prevail, and that at some point a limit will be imposed on the burning of fossil fuels. In this new reality, the debt burden of the fossil fuel companies becomes unsustainable and there is a financial meltdown that dwarfs 2008. Global warming is held to +2 degrees, but at the cost of the Mother of All Recessions.

The other option is that no controls are imposed on burning fossil fuels, and the carbon bubble does not burst until the warming breaks through the two-degree limit and triggers the natural feedbacks that will carry us inexorably up to +6 degrees C. That implies mass death and possibly civilizational collapse by the end of the century, but the fossil fuel reserves will retain their assumed value for the meantime and there will be no financial crash.

This is the scenario that the market is betting on, and at the moment most of the evidence supports that wager. The ideological and commercial interests that oppose action on climate change have triumphed in the United States and Canada, and without the Americans decisive action is hard to imagine.

The denial campaign has not explicitly defeated science elsewhere, but four years of recession in Europe have had much the same effect, sapping the will of governments to spend money fighting climate change. Last week, for example, the European Parliament refused to fund a scheme to rescue the carbon emissions trading scheme, once the centrepiece of the EU’s climate strategy.

In big, rapidly developing countries like China and India, the race for growth takes priority over cutting carbon emissions. And just when you think things couldn’t get worse, along comes shale gas to expand the fossil fuel reserves even further.

It’s a grim choice: either financial meltdown if we act decisively to halt climate change, or physical meltdown if we don’t. But there is, unfortunately, a third alternative. In fact, it’s the likeliest outcome by far.

First we go on growing our emissions at the current rate (three percent per year) for the next couple of decades, and the fossil fuel industry thrives. Then, when it’s already too late and we have crossed the +2 degree limit, the actual warming (which always lags the growth in emissions by a decade or more) frightens us into taking action at last.

So we lurch into a crash program to cut fossil fuel use—and suddenly the market wakes up to the fact that a lot of those reserves will have to stay in the ground forever. If you liked the sub-prime mortgage fiasco in 2008, you’ll positively love this one.

It’s not either Disaster A or Disaster B. It’s first one and then the other, interlocking and mutually reinforcing. And Disaster B will mean there’s no money left to do anything about Disaster A.

Comments (12) Add New Comment
PJ
Im still waiting for the ice age prommised by Suzuki ang Gore,40 years ago.Isnt it GLOBEL CLIMATE change now? in my book its called TAX whatever to make money even if you have to scare the public with scientific models (which are wrong 99.9% of the time).When is the last time the weather man predicted the weather for a week in advace and was right?
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FrameOfMind
Apocalypse is coming people, send all your money to me. Oh wait, you won't, you just want me to send money for your 'carbon capture', just how dumb do you think I am.
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Ray
Big Oil is already diversifying into other industries and into renewable energy. They have more than enough time to become the dominant players in those industries. Afterall we need energy and supplying it is their game. I guess that never occurred to Dyer or maybe it's inclusion wouldn't make for such an alarmist column.
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4th Option
I am surprised that Gwynne didn't mention it here as he has in his other speeches. Geo-engineering.
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GaiaMan
Humanity has a smoking CO2 and a gambling on the future addiction of which no clinic can cure...
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Louk
Another brilliant Gwynne assessment with valuable reference material. Helas, the scenario´s exclude both human strive to innovate/create new solutions nor stresses the large individual commitments to energy conservation and renewable resources.(as opposed to leaving all to government "leadership". Europe´s leading renewable and Carbon Tax initiatives are being watered down,as politically inconvenient. eg Spain´s 25 year PV contracts are being cancelled by decree, while geo-thermal and other innovations are put on-hold. Without individual initiatives and innovations rapidly growing, regardless of Gov´t reversals, Gwynne´s doomsday scenario´s may indeed occur.

All we can do is vote for more visionary leadership
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Pete
Dear Louk, Europe found out they cant afford these innovations,but here the gas is not 5.00/lit.yet.Now start adding CARBON TAX we will soon be there.Also tey know they cant do without oil and gas for industries who pass these taxes on to the consumer,making them more pricy then their competitors.
Didnt Al Gore say the world will end in 2012 ? I missed it.
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peter aardvark
WHile I agree that AGW is a looming problem and we're already
seeing the effects in droughts, increased hurricane activity etc..
One of the IPCC predictions based on continued c02 emissions growth includes increased growth in fossil fuels in the coming years. However Jeff Rubin (who is not a climate skeptic by any means) points out - where are they going to get it? Its just not there. (END OF GROWTH) it is becoming increasingly expensive to extract more oil out of the ground. The cost right now is already five fold what it was in 2001 - in fact it is one of the main brakes on the world economy. (and oil shocks correlate with deep recessions) Note that in the US young people are not driving as they used to. Getting a driver's licence was a rite of passage now driving is just too expensive for people or they join car clubs. Look at the number of vehicles sold per year in the US. Used to be 18million in 2007 now its 14million - also a corresponding decline in millions of barrels used per day. And it is not the end of the world look at countries like Denmark - people cycle a lot or there's public transit and cars are much more expensive than the US and surprise, there is no mass exodus of people leaving Denmark.

And yes, there are other options, such as geo-engineering which Gwynne mentions in his book Climate Wars. There are ways to improve soil and water retention etc. And while the alternatives renewables are maybe not competitive yet, they are improving, and once a tipping point is reached with battery storage, or for that matter synthetic biology like Joule unlimited which is working on algae that makes synthetic diesel competitive at 30$ per barrel. Even Dyer mentioned the English company Air-to-Fuel synthesis.
MIT did an interesting study on geothermal.

Lastly, there was a study that 4 million windmills would be sufficient to supply to worlds energy supply by 2030 (allowing for growth) and that includes energy for transport & heating etc. While it sounds like a lot, compared to the number of vehicles, ships and planes built yearly it is not that much.
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Etienne
Gwynne Dyer is overlooking something central: economics. Basically, the problem is this: at current prices there is no way the planet can keep consuming fossil fuels at the present rate.

Saudi Arabia and Russia, for example, both need oil prices to be well above 100 $ a barrel in order to make a profit. Just looking at the way government debt and deficits have soared since the explosion of oil prices in 2008 makes it very clear that most countries' economies cannot sustain such high oil prices indefinitely. No need to imagine a doomsday scenario: a return to interest rates similar to those of the seventies would be quite enough to sink most economies today.

So we won't turn all of the remaining oil reserves into CO2: but this will be as a consequence of massive economic contraction, not political choice.

And please, don't any of you delude yourselves into thinking that renewables could "fill the gap": there is a reason why 80% of the world's energy today is produced by fossil fuels: globally, fossil fuels are far and away the cheapest option. And governments and individuals alike simply cannot afford to invest much more on energy than they do now.

If you want to understand what most of the first world will look like in a generation or so, I recommend a trip to some small town of the former East Germany, or to the Inner City of any rust belt town of the American mid-west. Those offer an optimistic look into our future: for a pessimistic (or realistic?) one, read about Rwanda, the former Yogoslavia or Somalia.

As a great science-fiction writer put it: the future is here, it's just not evenly distributed yet.

The only parts of the First World I can see escaping this fate and maintaining the basic infrastructure of industrial civilization are ones which, *today*, have A) a renewable, i.e. non-fossil fuel-based source of electricity (non-nuclear, too: nuclear power depends so heavily on subsisidies and on the technical complexity which is made possible by fossil fuels that post-carbon nuclear power is an oxymoron) which produces enough of a surplus to be usable for non-oil-based transportation (trolleybuses and the like rather than individual electric cars), and B) (The ability to produce) a surplus of food.

This boils down to New Zealand, Tasmania, Quebec, the Pacific Northwest, Norway and Finland.

Well, you now know where to move to.
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Wilf Day
I have no doubt Dyer is right, but perhaps there is a fourth alternative; by their actions, China seems to think so. Perhaps we can adapt to a +6 degrees C world, and prevent mass death and civilizational collapse, more cheaply than by capping carbon emissions. Rising ocean levels will mean mass shifts by the end of the century, but that would explain why all those shiny new buildings in Shanghai's Pudong district were built on sand with 60-year life-spans; will subsidence flood them before the ocean does?
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Nope
Dear Etienne:

It'll be small zones isolated from the world. You can forget about Norway, it's not sustainable as it imports most of it biomass (from canada). Pacific NW is too tied in wit the rest of North America, and Finland will get swept away from Russia.

Just do yourself a favour and don't bother having kids
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BWZ
Dear Etienne,

Excuse me? Quebec.....sustainable? If (and this is a big IF) this scenario comes to pass, how does Quebec lead the way when they have been locked on to the teat of Western Canada (fossil fuel providers and might I add huge tax transfer providers)whom provide the balance required to maintain the heavily subsidized population? Give me a break!
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