$1.1tn of ‘high cost’ oil investments at risk

Many oil projects make “neither economic nor climate sense”, with as much as $1.1 trillion (£650 billion) of investor money at risk as a result, according to new analysis by the Carbon Tracker Initiative (CTI).

The organisation’s latest report, Carbon Supply Cost Curves: Evaluating Financial Risk to Oil Capital Expenditures, was released on Thursday and looks at the risks associated with high-cost oil projects.

Investors have been warned they should challenge carbon-intensive oil projects and the capital expenditure behind them, as they might not have economic value in a low-carbon future.

James Leaton, research director at Carbon Tracker, said, “This risk analysis shows that many oil companies are betting on a high demand and price scenario. Investors need get ahead of the carbon supply cost curve to ensure capital is not being wasted.”

Carbon Tracker’s latest report follows its flagship analysis in which it estimates that as much as 80% of fossil fuel reserves are “unburnable” if the world is successful at keeping global warming under a 2C threshold . This means that investors in oil, gas and coal stocks might soon face the risk of stranded assets.

Commenting on the new study, CEO Anthony Hobley added, “CTI’s research has created a new debate around climate change and investment. Numbers are the bedrock of financial markets and it is the numbers that allow you to move from the general to the specific in the investment world. This analysis is another critical tool from CTI to help financial experts identify carbon investment risk in the capital markets today.”

Carbon Supply Cost Curves is launched in London on Thursday and introduced by UN climate chief Christiana Figueres. Reflecting on Carbon Tracker’s work, she has previously said a large amount of carbon-intensive fossil fuels will have to stay in the ground if governments are to respect climate targets to reduce emissions.

Commenting on the analysis, Nick Molho, WWF’s head of climate and energy policy, said, “Today’s report shows that a significant amount of investment being made in new oil projects today are neither economically nor environmentally justifiable.

“It also highlights the fact that many oil companies are gambling not just with investors’ money but also on a world that will experience dangerous levels of climate change.”

Photo: Monica McGivern via flickr

Further reading:

Responsible investors call on Bank of America to address climate risks

IPCC findings demand investment in a sustainable future, say investors

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

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

Investors warned of ‘stranded’ carbon assets and working condition risks