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Are Coal, Oil and Gas the Subprime Assets of the Future?

June 25, 2015

Are Coal, Oil and Gas the Subprime Assets of the Future?

That question was actually asked by British Secretary of State for Energy and Climate Change Ed Davey last year, and its ramifications are extensively explored in a provocative report released today by the Center for International Environmental Law, a Washington, D.C. think tank.

According to CIEL, the answer to Davey’s question is a resounding “yes.”

The report makes a compelling case that the three big financial rating agencies – Moody’s, Fitch and Standard & Poor – that gave clean bills of health to the toxic financial products that caused the 2008 worldwide financial meltdown are giving similarly bad advice to investors by rating fossil fuel investments without acknowledging climate change-related risk.

Along the way, the report, called “(Mis) Calculated Risk and Climate Change: Are Ratings Agencies Repeating Credit Crisis Mistakes?,” stresses the potentially enormous legal liability for the agencies if their ratings understate the pitfalls of what are likely to be severe climate impacts on oil, gas, and particularly coal companies.

Coal is not only the leading contributor to atmospheric CO2 levels, it is the most financially dangerous investment. Coal prices have plummeted. Between 2010 and 2014, three coal plants were delayed or scrapped for every one built. After being dropped from Standard and Poor’s 500 Index in September, Peabody Energy, the world’s largest private sector coal firm, was dropped from Standard & Poor’s MidCap Index today because its market cap has plunged from $3.9 billion to just $700 million.

Other recent developments have made the idea of stranded fossil fuel assets far more tangible. These have included the G-20 conference asking for an investigation into $6 trillion in planned fossil fuel extraction investments, the wholesale divestment from coal by the Norwegian Pension Fund, and the International Monetary Fund’s repeated calls for an end to fossil fuel subsidies.

…click on the above link to read the rest of the article…

 

 

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