Anthony Hobley, CEO of Carbon Tracker, a financial think tank, told GreenBiz in an interview during COP21 in Paris that the financial markets are only now waking up to the risk premium in fossil fuel investments. Consequently, they are providing capital far too cheaply to this sector.
That risk, of course, is that fossil fuel companies could be saddled with trillions in stranded assets of oil and gas fields they cannot develop, coal mines that go quiet and drilling equipment that becomes excess.
Carbon Tracker's analysis puts the potential global total of stranded assets affiliated with fossil fuels at $2.2 trillion in assets that would have to be written off, or not developed into revenue producing assets, if the world is to prevent global warming from climbing beyond 2 degrees Celsius. That 2-degree limit is a goal stated in the Paris Agreement.
"The problem is this risk is not fully understood so it is not being priced in. So, many fossil fuel projects are benefitting from a lower cost of capital — they are getting money far too cheaply," Hobley told GreenBiz Senior Editor Lauren Hepler.
"Part of our mission is to get the financial markets to see this risk and price it in, and assure the cost of capital for fossil fuels goes up," or that interest rates reflect that risk in financing deals for oil exploration, fracking or new coal mining. "Or even better yet, they see the risk as far too high so they do not allow them capital for these projects that would take (the world) above 2 degrees."