A new study has cautioned policymakers that the vast majority of fossil fuel reserves must remain in the ground and unburnt if the world is to avoid dangerous levels of climate change. The researchers also warned that fossil fuel investments are becoming “increasingly risky”.
The research from the University College London Institute for Sustainable Resources, which has been published in the journal Nature, found that a third of oil reserves, half of gas reserves and over 80% of current coal reserves must not be used before 2050 if global warming is to stay below 2C.
The 2C limit has been agreed as a target by policymakers, beyond this level of warming scientists have warned that irreversible tipping points could be crossed.
Lead author Dr Christopher McGlade, from the University College London Institute for Sustainable Resources, said, “Policymakers must realise that their instincts to completely use the fossil fuels within their countries are wholly incompatible with their commitments to the 2C goal.
“If they go ahead with developing their own resources, they must be asked which reserves elsewhere should remain unburnt in order for the carbon budget not to be exceeded.”
The paper also highlights which fossil fuel reserves should remain untouched, including the “overwhelming majority” of coal reserves in China, Russia and the US and over 260 thousand million barrels of oil the Middle East. It also adds that development of resources in the Arctic and any increases in unconventional gas are “inconsistent with efforts to limit climate change”.
Co-author Professor Paul Ekins, professor of resources and environmental policy at and director of the University College London Institute for Sustainable Resources, commented, “Companies spent over $670 billion (£430bn) last year searching for and developing new fossil fuel resources. They will need to rethink such substantial budgets if polices are implemented to support the 2C limit, especially as new discoveries cannot lead to increased aggregate production.”
He added that investors should question these companies on spending such budgets. Ekins explained that the greater global attention to climate policy means that fossil fuel companies are becoming “Increasingly risky for investors in terms of delivering of long-term returns” and he would expect prudent investors to shift their assets towards low-carbon energy sources.
The risks around investing in fossil fuels has led to the term ‘carbon bubble’ being coined, with many studies and organisations warning of losses in returns over the long-term. The Bank of England is also assessing the risk the carbon bubble poses to financial stability.
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