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Thursday, December 9, 2021

When the Finance World Turned Face on Fossil Fuels

The month of September witnessed a quiet celebration that marked the 10th year of the “Carbon Bubble” report, according to Bloomberg News. The report was published by Carbon Tracker Initiative. 

What does the Carbon Tracker Initiative Report State?

Malte Meinshausen along with other scientists had released a publication with the name of the paper being Nature, which was published a few years ago. This report tries to estimate how much “heat-trappingcarbon dioxide can be released by human beings before the world registered a 2-degree rise as compared to the industrial levels. 

It was found, according to Bloomberg News that to breach the limit of warming beyond industrial limits, not more than a trillion metric tons of carbon dioxide could be burnt between 2000 and 2050. 

If this figure is put against the untapped fossil fuels amount, it was found in 2011 and as per Carbon Tracker Initiative, only one-fifth of 2.3 trillion tons of the hydrocarbons could be extracted for use. The remaining would have to be spared in the ground. However, the corporate world found the proposal counterintuitive. And all this gas, coal, and oil was found to have a contribution to the companies’ value and assets that spread across portfolios spanning from New York to Hong Kong. Even if the goal that was realized was only partial, yet the holdings would lead to plummeting of the same. 

For investors, these would be nothing but “stranded assets” and not only that these investors would also be facing the risk of carbon that is unburnable. 

Bloomberg News reports that climate change can be termed as a “wicked problem”. However, the Carbon Bubble report gave a completely new angle of looking at the prevailing problem. 

The authors of the report focused on another fact or truth. And that is the business related to fossil fuels had to stop if everyone wanted the planet to survive. 

The exit from fossil fuels has also been driven by pressure from the consumers, policies, and technology. During this phase, many investors started to reconsider whether they must own such assets. As far as the fossil fuel sector is concerned, it can be found out which carbon reserves are burnable, keeping in mind the scarcely remaining carbon budget. 

The Carbon Bubble Report had warned about a lot of things, some of which have already taken place. There are many companies listed that have been named as the most loaded with too many carbon reserves are now operating by adhering to certain policies that would perhaps not have been possible even ten years ago. Few companies have failed. 

Few instances of how companies have acted on the issue include BHP Billiton, Exxon, and AngloAmerican. 

BHP Billiton acted too slowly to do away with the thermal coal assets it has and still finds itself “stuck”. Exxon had to give the values of its reserves in writing because of the excessive amount of shale gas assets, that the company bought a decade ago. AngloAmerican had to shell out money to break away from its coal mines in Africa. 

Limitations to the Theory

The limitations to the proposed theory have been exposed as well. It has been observed according to Bloomberg News, that companies having fossil fuels as assets can lose a lot of money if it is private, without the need to cease production. 

Many companies have made use of an international treaty known as the Energy Charter treaty, which is archaic so file lawsuits against governments for approximately $18 billion over emission policies, as per Global Justice’s Now’s analysis. 

According to a study conducted by the International Institute for Environment and Development in 2020, it was found that out of the 257 foreign-owned coal power plants across the globe, at least 3 quarters are protected by an “investor-state despite settlement“, which allows these owners to remain protected against premature closures of the plants. 

Aside from the above, Bloomberg News, reports that state and national rules prevail and there are royalties and licensing aspects for these extractive industries that need leaseholders to continue production. 

One of the biggest barriers is that there are many governments for which fossil fuels offer an avenue for earnings from exports.

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Josie Patra
Josie Patra is a veteran writer with 21 years of experience. She comes with multiple degrees in literature, computer applications, multimedia design, and management. She delves into a plethora of niches and offers expert guidance on finances, stock market, budgeting, marketing strategies, and such other domains. Josie has also authored books on management, productivity, and digital marketing strategies.

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Business Upside eMagazine
Business Upside eMagazine
Business Upside eMagazine