Stranded assets: One study says just keep coal, oil in the ground

Pollution at Indian brickworks
ShutterstockDennis Albert Richardson

This article originally appeared at BusinessGreen.

The huge scale of the unburnable carbon reserves held by the global energy industry again has been underlined with the publication today of a major new study that concludes 80 percent of coal reserves and a third of oil reserves should stay in the ground.

The study from the University College London Institute for Sustainable Resources published in the journal Nature assesses the scale of fossil fuel reserves that can be exploited if the world is to have a 50 percent chance of limiting average global temperature increases to 2 degrees Celsius.

Authors Christophe McGlade and Paul Ekins detail how coal reserves are likely to be particularly constrained, with 80 percent of reserves deemed unusable through 2050. Similarly, the study suggests a third of oil reserves and half of gas reserves will have to go unexploited if the world is to stand a reasonable chance of avoiding severe climate change impacts.

Significantly, the study considers the potential for carbon capture and storage technologies to enable greater exploitation of fossil fuel reserves but concludes that it is likely to have only a modest impact.

The report warns that remaining fossil fuel reserves have the potential to release three times more carbon dioxide than is permitted by the internationally agreed 2 degrees Celsius target. 

It also details how restrictions on fossil fuel use will vary by geography and sector. For example, the study argues the Middle East will be able to use over 60 percent of its relatively accessible oil reserves, while the United States and Australia may be able to access only 10 percent of their coal reserves. Similarly, the fracking industry may be able to continue to operate in the United States, but could face tight restrictions in new regions.

The study provides further ammunition for the so-called carbon bubble hypothesis, which asserts fossil fuel companies are placing valuations on reserves that will become stranded by a combination of climate change legislation and increased competition from clean technologies.

"The UCL research confirms that expensive coal, oil sands, Arctic and unconventionals are beyond the carbon budget," said James Leaton, research director at the Carbon Tracker NGO, which pioneered research on the carbon bubble. "It is a reminder that companies need to justify spending more capital on high-cost projects given the clear direction of travel towards a low carbon economy."

He added that growing numbers of investors already were using detailed cost curves produced by Carbon Tracker that allow them to identify how low demand and price scenarios for fossil fuels could affect investments.

His comments were echoed by Friends of the Earth's senior climate campaigner, Simon Bullock, who hailed the research as "yet more evidence of the urgent need to leave fossil fuels in the ground."

"But despite mounting concerns about climate change, the U.K. government is desperately trying to drill for as much oil and gas as it can," Bullock said. "We need an end to new fossil fuel exploration — starting with a ban on fracking. If we want to prevent catastrophic climate change, we must invest in energy efficiency and our home-grown renewable energy potential — and end our damaging addiction to fossil fuels."