Surprisingly, despite the importance placed on it in the University of Toronto fossil fuel divestment brief and in the divestment movement generally, I don’t have a post on the idea of the carbon bubble. If we start with the temperature targets countries have chosen as the upper limit for tolerable climate change, we can calculate that the world’s total fossil fuel reserves are much bigger than necessary to bring us to that target. Hence, if governments achieve their climate change mitigation goals, most of the world’s fossil fuels will need to be left unburned and the profits firms expect to make from them will be unrealized. Under such a scenario, fossil fuel investments will be stranded.
Back in February, The Economist explained:
Yet amid the clamour is a single, jarring truth. Demand for oil is rising and the energy industry, in America and globally, is planning multi-trillion-dollar investments to satisfy it. No firm embodies this strategy better than ExxonMobil, the giant that rivals admire and green activists love to hate. As our briefing explains, it plans to pump 25% more oil and gas in 2025 than in 2017. If the rest of the industry pursues even modest growth, the consequence for the climate could be disastrous.
ExxonMobil shows that the market cannot solve climate change by itself. Muscular government action is needed. Contrary to the fears of many Republicans (and hopes of some Democrats), that need not involve a bloated role for the state.
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According to ExxonMobil, global oil and gas demand will rise by 13% by 2030. All of the majors, not just ExxonMobil, are expected to expand their output. Far from mothballing all their gasfields and gushers, the industry is investing in upstream projects from Texan shale to high-tech deep-water wells. Oil companies, directly and through trade groups, lobby against measures that would limit emissions. The trouble is that, according to an assessment by the IPCC, an intergovernmental climate-science body, oil and gas production needs to fall by about 20% by 2030 and by about 55% by 2050, in order to stop the Earth’s temperature rising by more than 1.5°C above its pre-industrial level.
If accepted, this argument torpedoes the idea that sticking with fossil fuels is a path to prosperity while turning away from them to fight climate change is an economic sacrifice. If we’re really going to make the transition, the people who kept investing in fossil fuels until the end will have the most to lose.
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