This is a huge deal: Exxon agrees to evaluate the "stranded asset" risk associated with climate action
The financial markets are starting to realize that the “booked” reserves of the fossil fuel companies are based on a fallacy: these estimates assume that those fossil fuel resources can be burned and still maintain a stable climate. As I and others have written for years, we must keep a significant fraction (about three quarters) of known fossil resources in the ground to have any hope of stabilizing global temperatures at or near 2 C above preindustrial times.
Yesterday Exxon Mobil made a major announcement, summarized by the New York Times as follows:
Energy companies have been under increasing pressure from shareholder activists in recent years to warn investors of the risks that stricter limits on carbon emissions would place on their business.
On Thursday, a shareholder group said that it had won its biggest prize yet, when Exxon Mobil became the first oil and gas producer to agree to publish that information by the end of the month.
In return, the shareholders, led by the wealth management firm Arjuna Capital, which focuses on sustainability, and the advocacy group As You Sow, said they had agreed to withdraw a resolution on the issue at Exxon Mobil’s annual meeting.
There has been some excellent coverage in the mainstream media on this development, the key articles of which I list below.
Ceres.org, which was heavily involved in obtaining Exxon’s agreement for these disclosures, deserves great credit for helping make this happen.
The reason why this development is so important is because once markets realize there’s an arbitrage opportunity, they relentlessly chip away at it until it is eliminated. And the stranded fossil asset arbitrage opportunity is one that’s worth many trillions of dollars. So the pressure will continue to build, and soon the disclosures will result in attention paid to this asset risk that simply hasn’t been present before. That attention will become a flood very rapidly. It’s the beginning of the end of the fossil fuel economy, but the big players just don’t realize it yet (or if they realize it, they’re not admitting it).
As I wrote in my recent article titled “Moving Beyond Benefit-Cost Analysis of Climate Change” in the peer reviewed journal Environmental Research Letters:
Meeting the 2 Celsius warming limit implies that a significant fraction of proved fossil fuel reserves simply can’t be burned [4], or we’ll need to figure out a way to sequester carbon in a safe way (which is not currently feasible on the scales needed, though it has been proved in some applications). This line of argument has achieved recent prominence through the writings of Bill McKibben [23] and Al Gore [24], but it was first put forth in 1989 in Krause et al. [9], and it’s a direct result of the “working forward toward a warming limit” method.
This conclusion is ominous for those now fighting to build more emissions intensive infrastructure. There’s a real business risk to them because once the world finally accepts that rapid reductions of emission are required (which must happen soon if we’re to have any chance of stabilizing the climate), those investors will lose their money. When markets turn, they do so with terrifying speed, and this time will be no exception.
Refs cited
4. Koomey, Jonathan G. 2012. Cold Cash, Cool Climate: Science-Based Advice for Ecological Entrepreneurs. Burlingame, CA: Analytics Press.
9. Krause, Florentin, Wilfred Bach, and Jon Koomey. 1989. From Warming Fate to Warming Limit: Benchmarks to a Global Climate Convention. El Cerrito, CA: International Project for Sustainable Energy Paths.
23. McKibben, Bill. 2012. “Global Warming’s Terrifying New Math.” In Rolling Stone Magazine. July 19.
24. Gore, Al, and David Blood. 2013. “The Coming Carbon Asset Bubble.” The Wall Street Journal (online). October 29.
Back in the late 1980s when I first started working on this issue, my colleagues and I knew we would eventually see a turning point in this battle to stabilize the climate, but we’ve all been shocked by how long it’s taken. We’ve known the basic outlines of the problem since then, and the warnings have only gotten more dire. Let’s hope this is the turning point we need to finally move towards rapid emissions reductions. There’s simply no more time to waste.
