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!

Peak Oil v Peak Carbon v Giant Carbonised Insects

More on how the rug rats of today are going to live as adults, dodging the gnashing jaws of carbonised giant insects:  is it just me or is the oil peak being pushed out further and further?

Over the last few months, and despite limited interest in the industry (other than to shut it down), there seem to be a plethora of new oil deposits found / exploited.  Big ones.  Some media refer to them as giant fields.  If this observation is correct, then Peak Oil is a thing of the past and we are definitely all going to be gobbled. 

As an aside, with so many giant carbonised insects – such as the meter long centipede referred to in an earlier blog – we will also have a new source of food /protein to feed the masses tipped to hit 10 billion in my [old already] lifetime. 

But back to the new oil sources.  Some months ago I read about BP (and others) making a large find off the northern coast of the UK.  Or was it the end of last year?

Anyway another has been announced only last month.  UPI reports “British energy company Premier Oil announced that it made an oil discovery in the Catcher area of the country's territorial waters of the North Sea.”

And remember a few months ago the announcement of the large oil deposit find off the coast of Ireland;  poor ol’ Ireland that has lost its wealth, its income, and a whole generation to austerity??  Exploration company Providence Resources announced the find off the coast of Cork.  The find was referred to as “major”.  The article went on to say ”The coastal Basins surrounding Ireland have long been known to harbour valuable natural resources. It’s estimated that they could produce 10 billion barrels of oil and an unquantifiable amount of gas. In the past, exploration has been held back by a lack of technology and low oil prices.”

As probably more of a political statement, Kurdistan has started shipping oil to Turkey.  Whilst in east Africa, “Tullow Oil, a London-based explorer with the most licences in Africa, said it planned to accelerate drilling in Kenya after making the East African (Kenya) state’s first discovery earlier this year.  Tullow forecast Kenya has the potential to exceed Uganda, where with Total and CNOOC it plans to invest more than $10bn to unlock an estimated 2,5-billion barrels of oil. $4 per barrel.”

But wait, there’s more.

The Norwegian oil firm DNO International said it is ramping up oil production in Iraq as it confirmed an oil discovery in the country's resource-rich Tawke field and has resumed drilling operations in Yemen. DNO, which explores and produces oil and gas in Iraq and Yemen and plans to expand activities in North Africa and the Middle East

And more.

“Online PR News – 05-July-2012 –PierMax Energy Exploration is pleased to announce that, it has made a significant oil discovery in current onshore Kurdistan oil exploration project.”

And so it goes on and on.

And to crown my paranoia about never reaching Peak Oil (which has been forecast to be occurring around now) and thus never reigning in the carbon problem, I read George Monbiot recent article False Summit (meaning oil summit or ‘peak’).  The great eco campaigner. 

His first sentence is “We were wrong about peak oil: there’s enough in the ground to deep-fry the planet.”  And ends with “But right now I’m not sure how I can look my children in the eyes.”

In between those two emotionally charged sentences, is a great article, and as usual well researched.  Citing various article, he asserts that the recent sustained high price of oil has triggered to new oil resource boom.  That indeed, it is not so much how much oil, but at what price. With US$2.6 trillion spent over this three year period in exploration etc (end 2012).  Some of it extracted using fracking, the environmentally fraught polluter.

Yeah gads!!

So back on the research car and this was found.  Published in 2006, so it overlooks the recent massive investment in oil production and discoveries;  by the way, all of which are found and delivered from very difficult methods / places (fracking, deep sea). These five key points are believed at that time to be irrefutable and the basis of Peak Oil. 

1. The biggest oilfields in the world were discovered more than half a century ago, either side of the Second World War.

2. The peak of oil discovery was as long ago as 1965.

3. There were a few more big discovery years in the 1970s, but there have been none since then.

4. The last year in which we discovered more oil than we consumed was a quarter of a century ago.

5. Since then there has been an overall decline.

So anything written since then to confirm this thesis?  Well in May this year, there is a long post on oil and the industry on scepticblog.org by a reasonably senior academic geologist.  It is extremely lengthy, however sufficiently erudite and simplistic (for this oil idiot) for it to be recommended to all.  These are just a few extracts of interest: 

Academic geologists are nearly 50% women now, and they are distributed across all age classes. Oil geologists, by contrast, are nearly all old white guys in their 60s or older, with a lot of young men (and a few women) just recently hired in the business. The entire generation that would now be in their 40s and 50s is missing because of the attrition during the oil busts of the late 80s-90s. [I just thought this was interesting].

As the Time magazine article pointed out, now they’re spending most of their time and money on increasingly risky and expensive operations like fracking, pumping water in old fields to push out the last drops of oil, or mining oil sands with all their environmental costs. The biggest push is in offshore oil platforms—and the 2010 Gulf oil disaster (along with previous oil disasters on platforms around the world) shows just how risky it is to drill so far offshore.

So what about the world discovery rate? That answer has been known for a long time. World discovery rate peaked in 1965, and has been steeply declining ever since, even though more and more exploration is conducted in the farthest reaches of the globe in the past 47 years. The “peak oil” effect has probably already occurred, and we are likely on the slow downward decline in discoveries of cheap, easy-to-pump oil.

……in recent years most of the estimates place the total volume of ultimately recoverable oil in the range of 1.8 to 2.6 trillion barrels, with most estimates around 2.0 trillion barrels.

The booming economies of China and India, along with some other developing nations, are greatly exceeding any increased production due to new discoveries. The numbers are truly staggering. From only 50,000 barrels/day in 1980, world consumption is now almost 100,000 barrels/day. As oil executive Peter Tertzakian pointed out in his book title, we’re nearing the once-unimaginable consumption rate of a thousand barrels a second! Even as the U.S. finds more oil in unconventional places, we cannot keep our domestic prices down because demand outside the U.S. is driving the world price upwards.

So by my calc that is ~55,000 years of oil supply at today's consumption levels if we use the 2 trillion estimate with current consumption at 100k barrels per day.  At that level we are toast!! Something doesn't seem to be adding up here.  Then we look at the next argument, of 1,000 per second.  That equals about 86 million barrels per day; being 60,000 per minute;  3.6 million barrels per hour; etc.   So I think he meant 1,000,000 not 100,000.  Which brings the ~55,000 back to ~55 years of supply at today's consumption level.  Phew!!

There is also the fact that the peak of discovery of major oil fields occurred 47 years ago, and there have been no giant oil fields found in a long time, and most of the world’s older oil fields are nearing their ends.

An acre of corn consumes 80 gallons of oil in the form of pesticides, fertilizers, and fuel for the tractors.  Without [oil], our food supply would collapse, and the world would be looking at a global famine. The end of cheap oil will force everyone to re-examine agricultural practices, since you can’t make most pesticides or fertilizers out of coal. 

And thus cannot replace lost oil with biofuel. 

So rug rats.  There are your choices:  eaten by giant carbonised insects or die of starvation.  Blame the old white guys in the oil industry. 

However, I believe that we can confirm that peak oil has definately come and gone.  So that is hopeful.  Right?

Ethanol, its complex

That’s the tricky thing isn’t it?  If the production and use of ethanol emits more carbon in aggregate than the production and use of gasoline, then what’s the point?  We may replace the falling oil production, but at what price to the planet?

Then there are the other externalities to consider.  Land used for fuel instead of food.  Excess water usage.  Land degradation.  Capacity limits to scaled up production.  Biodiversity depletion from monoculture production.  Poison from the different gases released.

As outlined here, it is time to find out if ethanol is worth its weight in oil relative to carbon emissions.  Information usually obtained by plundering publications on the internet.  And what is found, is, it’s complicated. 

So there is good news and bad news.  However, to round out the debate it is interesting to note that ethanol is produced by various crops.  In the USA it is mostly corn;  in Europe it is rapeseed;  in Brazil (for example) it is sugar cane; in China it is seaweed; and in Australia it is soy bean.

Production of each of these has different carbon footprints and externalities, and even within each specific crop, there are differences that can make it carbon neutral or carbon (eq) intensive.

For example the (subsidised) corn production in the US and rapeseed in EU is causing the prices to rise internationally, and directly affecting food security for the rest of the world.  Especially poverty stricken countries, for which maize and edible oils are a large part of their diet.  The UN’s FAO called for a reduction in production of both.  Further they produced a study that shows in Latin America only Argentina, Brazil, Paraguay and Columbia could sustainably produce biofuel without affecting food security.  

Then there is this article, which suggests that depending on how the corn is produced it could be 20-30% less carbon intensive / 20-30% more carbon intensive than gasoline.  It is land usage that makes the biggest difference.  Quoting: 

“if you assume that all the land used to produce the ethanol feedstock is already in production, you tend to find a carbon footprint at the low end of the range, since there is little net reduction in the carbon sink, and ethanol looks pretty good. If you assume that all the land used to produce the ethanol feedstock came from forests that had been chopped down, or marginal land that produces very low yields, you tend to find a carbon footprint at the high end of the range, and ethanol looks bad. Thought about another way, ethanol made from corn or sugar that displaces human or animal food production is likely to be relatively greenhouse gas friendly compared to ethanol made from corn or sugar that comes from new land put into production just for ethanol.”

Then there is this report, that compares the cost of subsidising corn ethanol versus sequestering the land used for the subsidised corn as carbon sinks.  The latter trumps the former in dollar cost to the taxpayer.  And this report shows how corn is produced at the farm level, may / may not produce substantial amounts of nitrous oxide, a GHG 300 times worse than carbon.  

And then there is this study “Ethanol as Fuel: Energy, Carbon Dioxide Balances, and Ecological Footprint”.  Really, it was the most comprehensive. 

It compares the production of corn in the USA versus sugar in Brazil, as inputs for biofuel.  US comes out looking not so good, and Brazil very good (as in reports above).  

I recommend you read it.  But for a summary of US:  to produce sufficient ethanol in 2012, all the available cropland in the US must be turned over to corn.  By 2036, add in the entire range and pasture areas as well.  And by 2048, every bit of land except for the cities.  So, ethanol is not an option.  And they give many other reasons as well.

In Brazil, only 10% of cropland is required to run the total fleet for the next 30 years.  Starting to consider the complexity? They conclude:

In the Brazilian case, for carbon sequestration, it seems to be more effective to reduce the rate of deforestation than to plant sugarcane.

In the US case, the use of ethanol would require enormous areas of corn agriculture, and the accompanying environmental impacts outweigh its benefits. Ethanol cannot alleviate the United States' dependence on petroleum.

Finally, there is this recent report.  Seaweed, that has been grown at a commercial scale for more than a century in China, is now producing biofuel in small trials.  As with sugarcane, and corn, it is the sugar that is the key ingredient. And it doesn’t compete with food crops, it does not require land, plus it is a pollutant cleanser not polluter.  On a per acre basis it produces 50% more ethanol than sugarcane, and 3 times that of corn.   There is more info here.

So there it is.  No rah!! rah!! or slaps on backs for using ethanol.  It is not all the same.  Indeed much production is creating worse environmental and carbon problems than it is fixing.  The seaweed biofuel seems to be the answer.

But if I can’t get my sushi, I‘ll be cross.  

Carbon companies still a SELL

One of the best organisations analysing and reporting about the international systemic risk of listed companies concentrated in resource extraction is Carbon Tracker.  

Its reports are startling in their simplicity and the scale of the research.

We wrote about an earlier report of theirs “….the outstanding issue for me is that credit [debt] and equity analysts around the world have not picked up on this.  Where are they?” and “Why would anyone want to invest in companies whose assets are highly likely to be impaired, and whose product is also killing their children and grandchildren.”

Their report illustrated as clear as day follows night (well, for the moment, give it a few decades and it may not) that there are substantial number of listed commodity companies on international stock exchanges whose assets will be substantially impaired in the near term.  With a high probability.

Now they have delivered another critical report about listed coal companies on the London Stock Exchange: 

New analysis from Carbon Tracker endorsed by WWF shows how the growing number of coal mining companies listing in London exposes the financial market to a significant systemic risk. Investors tracking the FTSE AllShare Index are facing increasing efforts across the world to regulate the carbon dioxide (CO2) emissions from coal-fired power generation, most recently in Australia.­­­Carbon Tracker estimates that coal reserves equivalent to 44.56 GtCO2 are held by companies listed on the London Stock Exchange. This is equivalent to 400 years of emissions from coal power stations in the UK, which currently stand at around 0.1Gt CO2 per annum.

Where are the reserves? A third of coal listed in the UK is actually located in Australia, where the government has recently agreed to deliver a carbon tax and emissions trading scheme.  So “UK” investors are potentially exposed to climate change regulatory risk in Australia.  However, Australia and Indonesia export around three-quarters of their coal production.  So, in fact, around half of the coal owned by UK-listed companies is supplying developing economies in China, Russia, India and South Africa.

They call for regulators “Now is the time for them to also ask financial regulators to deliver a 2°C degree capital market system.”

Essentially the problem is two fold – actually more, but dealing with these.  When considering global strategic issues, there is an agreed limit of 2°C rise in temperature.  That is the world has agreed to cut its carbon emissions so that the temperature rises no further than that.  Beyond that are unknown and frightening climate consequences.

BUT, the amount of (in this report) coal as an asset listed on the world’s stock exchanges is far in excess of the amount of coal allowed to be burnt under the Durban climate agreement of 2°C.  

So in effect, the Directors & Officers, the regulators, the auditors, the CFO’s, and all the investors of these listed companies are wilfully blind to the fact that they are probably reporting false information with respect to assets;  are wilfully blind to regulating that false reporting;  and wilfully blind to investing in it.  

There is a clear yawning gap between a target limit of 2°C with respect to climate change, and unlimited degrees Celsius as amassed on the balance sheet of these listed companies.  And no amount of carbon credits / or trading can offsett the consequences of burning their assets.  If this was a company with internally competing strategies you would sack the board.  

The second problem is that many of these assets are listed on the London Stock Exchange.  Therefore that exchange carries a significant systemic risk when like a flood all these companies start amending their asset values.  Especially for all those pension managers who blindly invest to the index.  

For this I have very little sympathy.  England is fighting tooth and nail to be the global financial centre.  When you are, what you get is the world’s systemic risks in a concentrated form.  

As I have written elsewhere.  The directors of these listed companies are in my opinion wilfully blind to their impaired assets; and regulations already exist for them to commence reporting their assets in a true and fair manner.  After considering all the risks.  Publicly.

We need the regulators to act.  And that is what Carbon Tracker is doing.  

Climate Catastrophes Downunder

A friend alerted me to the Australian weather experience over the festive season.  There were floods, bushfires and also hail storms.

South Australia is currently experiencing the hottest start to the year in more than a century.  A hot air mass which can sear vegetation is moving across the state.  In fact, the air is so hot they have cut the electricity to various towns.  Temperatures have hovered around 40 degrees Celsius. That’s 104 degrees Fahrenheit.  But New Year's Day it was even hotter, a record for 112 years at 41.3 degrees Celsius.

And I was alerted to another significant weather event by Don White of The Land newspaper.  For the first time ever, the 30 day running mean of the Southern Oscillation Index (“SOI”) is well over 20+ in December for two years in a row.  

The SOI is calculated from the air pressure difference between Tahiti and Darwin.  Other than 2010 (and now 2011), the previous Decembers it has been 20+ were in 1889, 1917, 1950, and 1975.

Whilst in Darwin, in the Northern Territory, overnight, 32mm of rain fell in one hour. And there is flooding outside the city of such magnitude that it is pushing cars off the road. The Daly River region is in full flood. 

Yet in the Hunter region (outside Sydney), Upper Hunter has experienced its coldest December in 50 years. 

The Bureau of Meteorology reports that 2011 was Australia's third wettest year on the records.  699mm fell, 200mm above the long term average.  And the country experienced its first cooler than average year since 2001. 

The hail storm in Melbourne on Christmas day damaged more than 10,000 cars.  The Insurance Council of Australia declared the event a catastrophe.  The Melbourne storms become the eighth catastrophe declared by the general insurance industry in 2011, with insurable losses through catastrophes likely to exceed $4.5 billion, compared with $2.144 billion in 2010.

And full climate change events haven’t really started yet, as this blog explains.  So far, it is just a taste of things to come.  

Love those good news bad news days

Methane, hey!  Just can’t pin it down.  After writing about the horrors of nature unleashing her methane plumes in Alaska and the Siberian Ice Shelf, a flurry of new information has become available. 

Recently I have been focussing on the substantial fossil reserves shown as assets on the balance sheets of both listed and private companies.  Carbon Tracker estimates in its report Unburnable Carbon, that 80% of this is impaired.  This is because, only 20% of those reserves may be used before the carbon in the atmosphere tips us into catastrophic weather patterns. Therefore, these reserves should not be considered assets at all and should be written off the balance sheet.

Then news in The Independent suggested that the amount of methane in the Arctic and Siberian Ice Shelf was being released at a much greater rate than previously thought, as the ice melts faster than ever.  Methane of course as a carbon equivalent of ~25 times carbon.  It is ugly stuff.

Now we have the counter argument.  Although I don’t really see it as a counter argument, because it seems to me we are all in agreement about the methane, it just seems to be about the quantity and timeframe.  

So that’s the good news.  The New York Times reports that although methane releases may be quickening, it won’t occur for some time.  And it directs you to a website that then discusses a research publication by Igor Dmitrenko of the Leibniz Institute of Marine Sciences in Kiel, Germany, who says it won’t be a problem till the end of this millennium or the next.  

The bad news is there is a lot more methane / carbon than the calculations in my blog on methane, where it was ascertained that 40 – 72 GtCH₄  (that’s methane) was trapped there.  Equivalent to the entire carbon reserves allowed to be used before the proverbial 2 degrees centigrade tipping point.  In the NYT article however it reports that the amount of carbon in this permafrost contains about 2.5 times the amount of carbon in the entire atmosphere.  They refer to the Arctic et al methane emissions as one of the biggest wild cards in climate science.  And the Tundra is burning!!

Now I don’t know how you feel about this debate; it is not happening as fast as thought, and it is twice the existing carbon in the atmosphere and a wild card.  But I know how I do.  Can we please just stop arguing about the timing and do something about the problem!!

Based on what I have read so far, should this methane be released, even an itty bitty bit, you can bet your life that you won’t have one.  

Oh, and it is still bad news for fossil fuel companies and their impaired balance sheets. Nature is now your competitor and she ain’t for negotiating on cutting her emissions and reserves.

SELL argument stronger on methane news

Carbon derived from fossil fuels is a major portion of the total global greenhouse gas (GHG) effect causing our climate problems.  In my prior blog Peak Carbon, we looked at what gases exist, and included the concerns about the melting Arctic. 

One of the worst GHG gases is methane.  Produced by animals and also from deep wells beneath the sea, for example.  And there was very bad news today, exclusive to Steve Connor of The Independent.

Dramatic and unprecedented plumes of methane – a greenhouse gas 20 times more potent than carbon dioxide – have been seen bubbling to the surface of the Arctic Ocean by scientists undertaking an extensive survey of the region.

The scale and volume of the methane release has astonished the head of the Russian research team who has been surveying the seabed of the East Siberian Arctic Shelf off northern Russia for nearly 20 years.

In an exclusive interview with The Independent, Igor Semiletov, of the Far Eastern branch of the Russian Academy of Sciences, said that he has never before witnessed the scale and force of the methane being released from beneath the Arctic seabed.

"Earlier we found torch-like structures like this but they were only tens of metres in diameter. This is the first time that we've found continuous, powerful and impressive seeping structures, more than 1,000 metres in diameter. It's amazing," Dr Semiletov said. "I was most impressed by the sheer scale and high density of the plumes. Over a relatively small area we found more than 100, but over a wider area there should be thousands of them."

As far as I can assess this, it means that the negative pressure on the balance sheets of our listed fossil fuel companies (coal, gas and fuel) just became far worse. 

As reported in the Independent,  "We carried out checks at about 115 stationary points and discovered methane fields of a fantastic scale – I think on a scale not seen before. Some plumes were a kilometre or more wide and the emissions went directly into the atmosphere – the concentration was a hundred times higher than normal."

Although The Independent suggests that the damage to the environment from methane is 20 times the equivalent of carbon emissions (usually referred to as (GtCO₂eq)), elsewhere it is widely referred to as 25 GtCO₂eq. The equivalent measure enables us to consider apples with oranges so to speak, so that we can consider the global warming potential (aka GWP) of a particular GHG such as methane to the effects of carbon.

With this conversion factor of methane (CH₄), we can then return to the excellent work of the Climate Tracker report which I covered in this blog, explaining why all our fossil fuel companies should be on a SELL.

Based on a 25 GtCO₂eq for methane, and the Carbon Tracker report I calculate -

·         111 GtCH₄ methane equals 2,795 GtCO₂ all known reserves of fossil fuel

·         70 GtCH₄ methane equals 575 GtCO₂, the known amount of carbon left to be burnt before we pass the agreed 2^oC tipping point of catastrophic climate events. 

Now there is a fair bit of research that suggests that there is about 45 to 50 GtCH₄ (methane) in the Arctic and East Siberian Arctic Ice shelf. However there is other commentary that suggests that it is more than all known reserves of coal.  Again, according to Carbon Tracker's report, coal is 65% of all know reserves.

So we can do some cross referencing to get a reasonably robust adjusted figure for the amount of methane in the Arctic and Siberian Ice Shelf.  The greater than coal reserves suggests that there is 72 GtCH_4.

So where are we?  It is either 45, 50 or 72 GtCH_4, which is the equivalent of nearly all available carbon from fossil fuels before we hit catastrophic weather events.  That is, as Carbon Tracker says, before we hit the Unburnable Carbon threshold.

What is interesting about this argument, if there is one because so far my research suggests the argument is all one way, is that – Governments and listed Companies who own and sell the present fossil fuels, no matter what they do, nature can do its worst, possibly bigger and better, with methane.

I can see a day, when shareholders in listed companies that own their reserves (still on the balance sheets as unimpaired assets) will be fighting with governments (think sovereign, eg the middle east oil reserves on their balance sheets) about who has to write off their assets first.  And in the meantime, the melt in the Arctic wipes us all out anyway whilst Rome burns.

So that it is clear.  The methane is starting to gush from the melting Arctic. There is enough methane in the Arctic / Siberian Ice Shelf to equal the remaining limit of fossil fuels we can use before we hit a catastrophic limits on warming. 

This adds considerably more weight to the argument for impaired assets, as the Carbon Tracker report suggests.

To end on a different but related note.  As I was thinking about this issue, I was sitting in a sunny but cold park in London watching two gentlemen mowing the lawn on XX stroke fuel.  And I was thinking soon we will have to return to the times that the commons kept their grass down with sheep agistment.  And then I got thinking about the methane that sheep emit, and indeed would their methane GtCO₂eq be greater or less than the carbon from a lawnmower burning fuel. 

And then this brought me back to another blog, Peak Food, which showed that the aspiring and new middle classes in emerging nations are shifting their dietary wants to meat as opposed to grains, and this demand was placing increasing demand on the production of beef et al, all of whom produce methane. 

Still a SELL I am afraid.

The carbon investment conundrum. SELL

At last, a deal at the UN Framework Convention on Climate Change (COP17).  More than 190 countries accepted the "Durban Platform for Enhanced Action" that commits all of them to cut carbon for the first time through a legal treaty. Including the world’s three biggest emitters: USA, China and India. Although not universally loved, it is now all nations on board.  However, it is an agreement to reach an agreement.  Further, it delays real action.    Time which my prior blogs suggest that we do not have.

In substance this is how the Guardian is reporting it…

“……..that would deliver a global, overarching legal agreement to cut emissions…………. more or less agreed on a series of measures aimed at protecting forests, widening global markets and establishing by 2020 a $100bn fund to help poorer countries move to a green economy and cope with the effects of climate change………. The treaty will be negotiated by 2015 and coming into force from 2020. The deal also paves the way for action to address the "emissions gap" between the voluntary emissions cuts countries have already pledged and the reductions experts say are needed to effectively tackle climate change”

However, from where we are today, it would take about 100 years for carbon dioxide (CO₂) to disappear [to sustainable levels] from the atmosphere if emissions stopped completely.  I do hail the fact that something is being done and there is renewed impetus.

Quoting Tessa Tennant on the UN outcome, co founder of the Carbon Disclosure Project, “It is great to see all countries back on track in recognising the material implications of carbon”.

And the first task of this new impetus should be to establish a global taskforce to examine the massive reserves of oil, gas, and coal on our listed and unlisted companies.  It should be an imperative that this is the single most important issue.

Quoting the CarbonTracker report, Unburnable Carbon, in my earlier blog I wrote…..

They report that the global carbon budget for 2000-2050 is 886 GtCO₂.  In the first decade alone we have used 321 GtCO₂ already, or 36%.  This allows only 141 GtCO₂ for each of the next four decades. That is a big drop from 321 GtCO₂. 

They then report that all known fossil fuel reserves are 2,795 GtCO₂ (65% coal, oil 22% and gas 13% - in both listed and non-listed companies). Three times the aforementioned carbon budget.  And for Directors and Officers, this becomes even more alarming (especially to an ex global equity analyst) when the top 100 listed coal, oil and gas companies are reported to have reserves on their balance sheet of ~745 GtCO2. They go on to say “if the 2C degree target is rigorously applied [on a blended basis across both listed and private companies], then up to 80% of declared reserves owned by these companies …..are subject to impairment.” Thank goodness I am not the auditor or Director and Officer signing off on those balance sheets as true and fair. This report makes clear the systemic risk from not understanding more about Directors and Officers near term risks.

To re-iterate that point.  Of the listed companies today, with oil, gas and coal reserves [assets] on their balance sheet – and off – 80% must be written off.  You know, like when a bank makes a massive loss due to write-offs of their assets.  With respect to (carbon) fossil reserves, think Anglo American, BHP Billiton, Xstrata, Rio Tinto, Exxon Mobil.  Frankly their share prices are all doomed.

 

Is your fund manager investing in these companies with your lifetime savings?

 

The report suggests that it requires “unprecedented intervention” to co-ordinate how these global companies manage these reserves; however it also provides the blueprint within its recommendations for action.  To me this suggests only the UN Environmental Commission has the resources and global reach to effect change.

The work has been done by Carbon Tracker, so let’s act.

However, the outstanding issue for me is that credit [debt] and equity analysts around the world have not picked up on this.  Where are they?

Why have they not got a "sell" on every bond and share issued by these companies when we know with a high probability that they will suffer severe impairment of their assets?

Why are the Directors and Officer not writing off their reserve assets as unusable?  Under existing regulations they are required to do so by law.  Maybe they are relying on the now obvious delays incurred with the global call to action on carbon.  However that has changed overnight, and you cannot walk around any country without the populace knowing that climate change is occurring from their own experience.

Why would anyone want to invest in companies whose assets are highly likely to be impaired, and whose product is also killing their children and grandchildren.

It is a conundrum!

IMPORTANT DISCLOSURE:  This blog is not licensed to given investment advice.  You should not rely on anything published in this blog.  If this blog sparks an interest, then you should seek advice from a licensed investment advisor.