Check the share portfolio for CARBON

In January this blog suggested that carbon companies were a SELL.  It became one of our best recorded posts.   Much of that commentary was based on the excellent research conducted by the Carbon Tracker Initiative.  That website is listed at the bottom of this page.


Now the Rolling Stone magazine has given their work much greater coverage with a fantastic article by Bill McKibben; himself one of the renowned authors in this field.  It is five pages but provides an excellent summary of where we have been and are headed.  I exhort you to read it.  Most of the following comes from his article. 

And he starts of with the fact there are only a few numbers anybody needs to know when considering carbon dioxide (CO₂₎ in the atmosphere.  The first is that the temperature around the world has increased 0.8 degrees Celsius.  Which I have written about previously.

The international community has agreed that beyond 2 degrees Celsius is catastrophic for the weather and humans.  So we are nearly half way there already. 

But some reports calculate that even if we stopped increasing CO₂ now, the temperature would likely still rise another 0.8 degrees, as previously released carbon continues to overheat the atmosphere. That means we're already three-quarters of the way to the 2 degree limit target.

The second number that it is important to know is that to reach that 2 degrees,  by mid century humans can only release another 565 gigatons of carbon dioxide into the atmosphere. 

The third important number is that in 2011, the International Energy Agency said that CO₂ emissions rose to 31.6 gigatons. So by the end of this year, that means that we have only 16 years remaining before we must stop emitting ANY CO_2. 

Not just reducing, but stopping.  Cars, power plants, fires, planes, etc.

Now here is the next important number (and a return to our investing theme) the number of CO₂ contained in confirmed coal / fuel / gas fields is 2,795 gigatons.  That is, 5 times higher than what we can burn. 

That is, this is the known reserves in the ground and excludes any future discoveries from exploration. 

Now we can put some further analysis around those numbers.  The first point to make is that for children entering primary school this year, when they graduate, they will face a very frightening world (as McKibben points out).  That is how soon it is.

The second is in our investment portfolios.  At some stage in the next 16 years, we are going to realise – through more catastrophic weather events – that owning shares in the companies that produce this fuel is not a good idea.  

And that is because those 2,795 gigtons is actually on the companies’ balance sheets, and is built into the share price as an asset, and we simply cannot burn it all and survive.  The Carbon Tracker Initiative lists all those companies and you can look it up if you like.  Al Gore puts the number at US$7 trillion of value in carbon related companies, of which one fifth is US$1.4 trillion -  an overvaluation of US$5.6 trillion.

So can we then derive that those company balance sheets are possibly 5 times over-valued? I guess it is a toss-up really.  Kids or carbon.  Australian legislation on what has become known as the "carbon tax" is not the first to introduce it, but it became effective this month.  And as McKibben points out, it is the only way to stop these behemouth companies in their tracks and save this planet. Oh, but sell the shares first huh!