COP21 and Stranded Fossil Fuel Assets

As the world pursues a global climate deal at COP21 in Paris a new report suggests more than 2 trillion worth of fossil fuel projects are at risk of being stranded. If we are to seriously attempt to keep warming below the internationally agreed-upon 2 degree Celsius upper threshold limit, vast amounts of fossil fuel assets cannot be extracted and burned. As reported by the Guardian, the thinktank Carbon Tracker has produced a study that indicates that $2.2 trillion worth of projects are at risk as the market for fossil fuels shrinks.

Here are the top four countries at risk from stranded fossil fuel assets:

1. United States $412 billion
2. Canada $220 billion
3. China $179 billion
4. Australia $103bn

The companies with the greatest exposure are Shell, ExxonMobil, and Pemex. Each of these companies has over $70bn that is at risk. Lord John Browne, former BP boss, Sir Mark Moody-Stuart, former Shell and Anglo American chair, and others say there must be “fundamental reassessment of the fossil fuel industry’s business models.”

There are many examples of businesses that failed to see the writing on the wall. Anthony Hobley, chief executive at Carbon Tracker pointed out Kodak and Blockbuster. “Our report offers these companies a warning [about] avoiding significant value destruction,” Hobley said. The report indicates that coal is already at “the end of the road for expansion of the sector”.

Despite the risks, $1.3 trillion is being spent on new oil projects and $124 billion is being spent on existing projects. Concerns about stranded fossil fuel assets are corroborated by another report from Critical Resource, a firm that advises fossil fuel companies. This report said “meeting [a 2C] target will result inevitably in steep declines in fossil fuel production over the coming decades” but that the “industry has so far generally been locked in defensive mode”. It added: “While most companies recognize the importance of climate change to their businesses, there is little evidence that most are altering their strategic plans.”

This report concluded: “Companies [should] urgently develop strategic plans to identify how they can compete commercially in a [2C] world. The aim is to unleash the industry’s creativity and innovation in finding profitable solutions.”

“The critical mass point could be as soon as a couple of years down the road, which is pretty soon for an industry that has been around for 100 years,” Litvin said.