How Climate Change Could Bring On The Next Financial Crisis

[Tarrel]

http://www.ecoshock.info/2013/05/unburn ... -fuel.html

An interesting interview on Radio Ecoshock with Bob Ward from the Grantham Institute at the LSE.

The contention is that energy companies are sitting on fossil fuel assets that can never be used if we are to stay within a 2 degree temperature rise target. These companies are therefore dramatically over-valued.

Various scenarios are discussed, including:

a) a chaotic flight from energy stocks by the large, institutional investors as they respond to risk warnings by their advisors.

b) a scramble by the energy companies to use up their fossil-fuel assets quickly while they still can, before rising awareness of climate change creates a societal tipping-point that renders the reserves unsaleable.

It appears that major players in the mainstream financial industry, including HSBC and the ratings agency, Standard and Poors, are taking this over-valuation seriously and advising their clients accordingly.

The podcast follows through with a view from Australia on the same issue.

Worth a listen IMHO.

[Little John]

They'll burn it.

When push comes to shove and our economies and societies are falling apart, they'll burn it.

And the planet will burn as a consequence.

[adam2]

Ultimatly all economicaly recoverable FFs will be burnt.
Efforts at conservation or substituting renewables may delay this but not prevent it.
It is probable that known about but not yet exploited reserves of FF will become worth more and not less as time passes.

Climate change may well result in a great crash, but for very different reasons IMHO.
I suspect that the end of BAU may be caused by truly extreme weather with resulting destruction of major cities and consequent failures of banks and insurance companies that own or insure assets in such places.
Or sudden and extreme crop failures resulting in widespread famine in first world countries and consequent civil disorder and collapse.

[emordnilap]

I suspect that the end of BAU may be caused by truly extreme weather with resulting destruction of major cities and consequent failures of banks and insurance companies that own or insure assets in such places.
Or sudden and extreme crop failures resulting in widespread famine in first world countries and consequent civil disorder and collapse.

Or worse.

[Tarrel]

I've no doubt you're correct Steve. What the article picks up on are the perception and confidence issues around valuation of the energy companies. I guess if confidence falls, then there will be consequential actions whatever the final fate of the fossil fuels.

On a positive note, the capital fleeing from the energy companies could, possibly, end up somewhere more beneficial. But, if this flight happens chaotically, it could further de-stabilise the financial system (and screw up thousands of pensions into the bargain). Such de-stabilisation could be a good thing or a bad thing, depending on who you are and how you look at it.

Most days I find myself falling into the "good thing" camp - seeing it as a step towards the "Grand Reset", but I'm also conscious that one needs to be careful what one wishes for.

[emordnilap]

The big energy multinationals only control around (less than?) a quarter of the world's resources. Much of the rest is under countries' direct control. Some administrations are less greedy than others, though the required shutting down of production is not on anyone's agenda.

[Little John]

The big energy multinationals only control around (less than?) a quarter of the world's resources. Much of the rest is under countries' direct control. Some administrations are less greedy than others, though the required shutting down of production is not on anyone's agenda.

I don't think it will make any difference E. In the case of multinationals, the FF will be burnt because of greed. In the case of nation states it will be because of desperation. No matter, the outcome will be the same.

[emordnilap]

The big energy multinationals only control around (less than?) a quarter of the world's resources. Much of the rest is under countries' direct control. Some administrations are less greedy than others, though the required shutting down of production is not on anyone's agenda.

I don't think it will make any difference E. In the case of multinationals, the FF will be burnt because of greed. In the case of nation states it will be because of desperation. No matter, the outcome will be the same.

I agree, all accessible ff will be burnt.

Our only hope of mitigation in some small measure is some kind of democratic control, which we all know is not going to come about.

When it comes to selfishness, the rump of the left is the right's biggest ally.

[JohnB]

I suspect that the end of BAU may be caused by truly extreme weather with resulting destruction of major cities and consequent failures of banks and insurance companies that own or insure assets in such places.

I thought that insurance companies were pretty aware of climate change, and its effects. When they stop insuring, interesting things might happen!

[peaceful_life]

Check out Clive Hamilton, earth masters.

Or any of the many videos, podcasts, interviews on the subject of geoengineering.

[adam2]

I suspect that insurance companies are well aware of climate change and the resulting gradual rise in sea levels for example.

What I suspect that they are not aware of is the increased risk of truly extreme and still relatively rare events. The "once in 10,000 years" city killer of a storm, that might now be a once in 1,000 years event. And remember that the risk is probably PER CITY or location, so there is a significant risk of a major city being destroyed in the next few decades.

Consider for example a similar event to the UK east coast storm of 1953, but with water levels a few meters higher. That would easily overtop the Thames barrage and other defences and could drown thousands, and indirectly kill millions due to lack of food, shelter, clean water and energy.
Not very likely, but it could happen, and probably will happen somewhere.

An event like that affecting a major world city could certainly push us over the edge.

[RenewableCandy]

Last I heard, UK Insurance companies (well, ABI, their collective body) were heaving a sigh of relief that global temperature rises and the slowing of the Gulf Stream would to some extent cancel each other out. Whether that still holds, though, is anybody's guess.

[Little John]

Last I heard, UK Insurance companies (well, ABI, their collective body) were heaving a sigh of relief that global temperature rises and the slowing of the Gulf Stream would to some extent cancel each other out. Whether that still holds, though, is anybody's guess.

I agree. The "cancelling out" effect could just as plausibly take the form of extreme swings in temperature from very cold to very hot all in the same season.

A bit like this spring and summer are shaping up to be, in fact.......

[biffvernon]

There'll be a few insurance claims in southern Germany, Austria and Czech republic after the rain. http://www.bbc.co.uk/news/world-europe-22752544

[woodburner]

Last I heard, UK Insurance companies (well, ABI, their collective body) were heaving a sigh of relief that global temperature rises and the slowing of the Gulf Stream would to some extent cancel each other out. Whether that still holds, though, is anybody's guess.

The Gulf Stream is a local effect, so Western Europe might not ntice such a large rise. However, global temperature rise is just what it says, global. It may be unpleasant for the UK, having much longer and colder winters. Why the ABI should be relieved seems to indicate a lack of understanding.