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Perfect storm heads for fossil fuel assets

Perfect storm heads for fossil fuel assets

gas drilling cemetry

A natural gas refinery next to a cemetery in New Mexico, US. Image: Christina Xu via Flickr

Coal, oil and gas sectors warned that trillions of dollars of assets could be stranded if a global agreement on limiting climate change is reached at the UN summit in Paris.

LONDON, 25 November, 2015 – The fossil fuel industry may waste as much as US$2.2 trillion (£1.45 tn) in the next decade if it persists in pursuing projects that prove uneconomic in a world beginning to turn its back on carbon.

An independent thinktank, the Carbon Tracker Initiative (CTI), says the industry faces “a perfect storm” of factors, including international action to limit global average temperatures to 2˚C above their pre-industrial level, and rapid advances in clean technologies.

The CTI report says there will be no need for new coal mines, oil demand will peak around 2020, and growth in gas will disappoint industry expectations if world leaders agree and then implement the policies needed to meet the UN commitment to keep climate change below 2˚C − the threshold agreed by most governments.

Next week’s UN climate change conference in Paris will be trying to reach such a global agreement.

Excess of supply

The report warns: “If the industry misreads future demand by underestimating technology and policy advances, this can lead to an excess of supply and create stranded assets. This is where shareholders should be concerned.”

James Leaton, CTI’s head of research and co-author of the report, says: “Too few energy companies recognise that they will need to reduce supply of their carbon-intensive products to avoid pushing us beyond the internationally-recognised carbon budget.

“Clean technology and climate policy are already reducing fossil fuel demand. Misreading these trends will destroy shareholder value. Companies need to apply 2˚C stress tests to their business models now.”

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