Bank of England to assess ‘carbon bubble’ risk

The Bank of England has revealed in a letter that it is to assess the risk fossil fuel companies and the ‘carbon bubble’ poses to financial stability.

Some argue that fossil fuel reserves are being overvalued when the need to tackle climate change is factored in, creating a ‘carbon bubble’ that could threaten financial stability. This is an issue that Mark Carney, governor of the Bank of England, has now confirmed that the institution will investigate.

In a letter to environment audit committee, Carney says that bank officials have discussed the idea of stranded assets because climate change could leave the majority of proven fossil fuel reserves as “unburnable” when mitigation efforts to keep warming below 2C are considered.

“in light of these discussions, we will be deepening and widening our inquiry into the topic, and I expect the Financial Policy Committee to also consider this issue as part of its regular horizon scanning work on financial stability risks,” Carney added.

Earlier in the year, MPs warned that stock markers are at risk of serious instability because of the carbon bubble. MP Joan Walley, chair of the environmental audit committee, noted that more than half of the world’s fossil fuel resources would have to stay in the ground.

Photo: Emilian Robert Vicol via flickr

Further reading:

MPs issue stark ‘carbon bubble’ warning to investors and finance world

Crimea, the carbon bubble and climate change

‘Carbon bubble’ risk reinforces the case for fossil fuel divestment

Carbon bubble: Obama admits world cannot burn all known fossil fuel reserves

Investors warn of ‘carbon bubble’ as Shell predicts climate regulation will hit profits