Carbon, Canada and the Mother Of All Bubbles

Thwaites Glacier (NASA)

Is this the new normal? Recent days have seen a spate of bad news on the climate front: the ongoing drought and wild fires in California, record floods in the Balkans, Earth's warmest April on record and, what Mother Jones mag called a "Holy Shit Moment for Global Warming", a large chunk of the West Antarctic Ice Sheet is in "irreversible decline".

Lead writer of that report Eric Rignot, a glaciologist at NASA's Jet Propulsion Laboratory, wrote a sobering piece in the The Guardian. In it, he said:

We announced that we had collected enough observations to conclude that the retreat of ice in the Amundsen sea sector of West Antarctica was unstoppable, with major consequences – it will mean that sea levels will rise one metre worldwide. What's more, its disappearance will likely trigger the collapse of the rest of the West Antarctic ice sheet, which comes with a sea level rise of between three and five metres. Such an event will displace millions of people worldwide.

Rignot finished the article, like countless scientists have before him, by calling for action:

Unabated climate warming of several degrees over the next century is likely to speed up the collapse of West Antarctica, but it could also trigger irreversible retreat of marine-based sectors of East Antarctica. Whether we should do something about it is simply a matter of common sense. And the time to act is now; Antarctica is not waiting for us.

Rignot was author on another important ice study telling us that Greenland will contribute more than previously thought to sea level rise.

A New York Times article by Kenneth Chang, The Big Melt Accelerates, puts these latest revelations in perspective.

“I can’t think of any major glacier region that’s growing right now,” Dr. Scambos said. “Almost everywhere we look we’re seeing mass loss.”

Turn down the thermostat

I keep wondering, 'what is it going to take for some serious action to happen'? Whatever way you look at it, it comes back to political will.

A compelling narrative, and one that I plan on covering in Running On Climate, is that of the "Carbon Bubble". The stock values of the world's publicly listed fossil fuel companies are wildly over-valued, as their prices are predicated on politicians failing to take action to prevent runaway climate change. If the required action is taken on climate change then many of the fossil fuel assets on their books will be "unburnable" or stranded assets.

As the UN's top climate official, Christiana Figueres recently pointed out to the oil and gas industry, three quarters of fossil fuels must stay in the ground for temperatures to stay below 2C.

Right now, financial markets aren't buying it. They clearly don't see any kind of aggressive action on climate taking place. For example, Shell, in a long letter to its shareholders, argues that, rather than recede, fossil fuel use will grow by 40-60% by 2050.

"we concur with the view in the recent Intergovernmental Report on Climate Change ("IPCC") report that there is a high degree of confidence that global warming will exceed 2°C by the end of the 21st Century. Yet this is not to argue that today's low level of action will continue at this pace. Indeed changes in regulatory policy could well be relatively sudden. However, because of the long-lived nature of the infrastructure and many assets in the energy system, any transformation will inevitably take decades. This is in addition to the growth in energy demand that will likely continue until mid-century, and possibly beyond.

Shell has been planning for years on the best way to profit from climate change. Clearly the corporate giant sees the world descending into a "scramble" for resources.

Watching some of the stock indexes for fossil fuel companies - in coal and oilsands, and Natural Gas - it appears to be the same story. Investors don't see carbon pricing or stiffer regulations impacting their bottom line.

The Conservative Party government under Stephen Harper is the one of biggest cheerleaders for fossil fuels, with massive expansion of the Alberta tarsands planned. It has been a vocal critic of pricing carbon and a world-leading, climate laggard. So it's easy to see why fossil fuel investors - particularly, here in Canada - might be lulled into a false sense of security.

But Canada - having gone all in on fossil fuels - is now one of the economies most exposed to the carbon bubble.

A recent report by the Carbon Tracker Initiative looked at valuations of oil companies and stress tested them against a scenario where governments did take action to limit climate change to 2C. They found that $1.1 trillion worth of projects would not have a return. Alberta's tarsands with its high cost, landlocked oil is considered most high risk.

As more of climate change's "holy shit!" moments hit the news, as the pressure builds on politicians, those bets on political inaction look increasingly risky.