Red light is flashing on the fossil fuel economy. We need a change of approach

Burning all the currently-owned fossil fuels would cause untold environmental damage

Share
Related Topics

The abiding impression of the political debate on energy prices during the last few weeks is of politicians stuck between a rock and a hard place - caught between the need to invest in our (green) energy future and the need to respond to the rising bills squeezing people already suffering in the economic crisis.

But while our leaders argue about whether energy price rises have been caused by profiteering, market forces or green tax increases, too little attention is being paid to a looming crisis that could dwarf current concerns.

The shocking consensus among scientists is that if all fossil fuel reserves around the world that are already found and owned were burned then the world will be 6 degrees warmer by the end of the century.

That means that if we are to prevent catastrophic climate change wreaking havoc on people and planet then the energy sector is going to have to take a massive hit that goes far beyond the investment needed to secure a green energy future. And it will have implications not just for energy giants but for investors and the financial sector as a whole.

The problem is simple: energy companies currently are valued according to the profits they can make by exploiting reserves of oil, gas and coal. If we cannot burn those already paid for, let alone those being explored and developed then these assets are worthless - stranded in business speak. HSBC has warned that the value of coal reserves could fall by as much as 44 per cent.

Yet the short-term focus of investors - including those such as pension funds which you might expect to take a longer view - means this is not reflected in energy companies’ share prices. That means companies keep investing in more dirty energy and banks reap the big short term profits. The assumption is that despite the planetary red light flashing, the fossil fuel economy will drive on regardless.

You only need to stop a moment to consider the implications to realise this is a non-starter. We are already seeing an increase in natural disasters such as hurricanes and droughts that is predicted by climate change models. People, mainly in poor countries vulnerable to such extreme weather events, are already suffering, as are poor farmers whose crops are being devastated by more subtle changes in weather patterns.

History and science suggest that long before the planet warms by six degrees large parts of the Thames Valley and the Lancashire/Humber corridor will have become uninhabitable due to flooding and the Sahara desert will have crossed the Mediterranean into Europe. The last time the Earth underwent that kind of warming was at the end of the Permian period about 250 million years ago, when 95% of species were wiped out.

If the science doesn’t convince you then try Lord Stern whose report set out in great detail why the economic consequences of failing to act will far outweigh the costs of making change happen now.

The problem is that financial markets will continue to reap short-term profits even when they know that the bubble will burst and someone somewhere will lose everything. Financial institutions just hope and believe it won’t be them.

This doesn’t necessarily mean that they are wilfully blind to the future - rather that our financial system and their day-to-day incentives reward short-term thinking over long-term planning. It doesn’t help that much of our economic literature does the same.

A report published by the new Green Light campaign backed by Oxfam and other organisations from environmental campaigners to unions - sets out in detail what actions pension funds could take, starting right now. These include regular reporting on managing climate risk and switching investment from carbon intensive activities to low-carbon opportunities and calling for political action to support action to tackle climate change.

Such initiatives are important and can make a difference. But the experience of the financial crisis shows we cannot rely solely on markets and investors to make the shift in outlook we need. As late as 2007, amid signs of stress in sub-prime mortgage markets and rising concerns that this could trigger problems across other bits of the highly-leveraged financial system, there remained an unwillingness to ditch what had worked in the past.

Despite clear signs a bubble was about to burst, bankers and hedge fund managers carried on regardless - in the notorious words of Chuck Prince, former Citibank CEO: “...as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”  

It is now widely recognised that governments and regulators should have taken firmer action sooner to defuse the crisis, even if that had short-term economic costs. That lesson now needs to be applied to the energy sector. In the US, regulations on pollution have already led to sharp fall in the value of coal power companies.

We shouldn’t pretend this will be easy. Almost a fifth of the FTSE 100’s market capitalisation is currently attributable to just four oil and gas producers. Yet, as the Pensions Minister Steve Webb stated at the launch of the Green Light report, there are real opportunities for investors to get ahead of the curve prosper from investments that will help reduce carbon emissions and enable us to adapt to the changing climate.

We know how this story ends unless we change the tune. One look at the damage climate change is already inflicting on poor countries should be enough to persuade us to act before the damage spreads. Because if we keep inflating the carbon bubble, then when it goes pop, the damage to investors, pension savers and all of us living on the planet will be much, much worse than acting today.

Mark Goldring is the Chief Executive of Oxfam

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Systems Developer Technical Lead

£65000 - £70000 Per Annum: Clearwater People Solutions Ltd: Our client based i...

Energy Engineer

£25000 - £30000 Per Annum: The Green Recruitment Company: Job Title: Energy En...

Techincal Accountant-Insurance-Bank-£550/day

£475 - £550 per day + competitive: Orgtel: Senior Technical Accountant-Insuran...

Sales Representative, Leicester

£25-£30k Plus Car: Charter Selection: Major well established nationwide market...

Day In a Page

A selection of 'Pro-Choice' badges are displayed on the coat of a demonstrator during a march from the Garden of Remembrance to the Dail (Irish Parliament) in Dublin, Ireland  

Ireland's refusal to provide a safe abortion to a suicidal rape victim is a national shame

Peadar O‘Grady
Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home
Lauded therapist Harley Mille still in limbo as battle to stay in Britain drags on

Lauded therapist still in limbo as battle to stay in Britain drags on

Australian Harley Miller is as frustrated by court delays as she is with the idiosyncrasies of immigration law
Lewis Fry Richardson's weather forecasts changed the world. But could his predictions of war do the same?

Lewis Fry Richardson's weather forecasts changed the world...

But could his predictions of war do the same?
Kate Bush asks fans not to take photos at her London gigs: 'I want to have contact with the audience, not iPhones'

'I want to have contact with the audience, not iPhones'

Kate Bush asks fans not to take photos at her London gigs
Under-35s have rated gardening in their top five favourite leisure activities, but why?

Young at hort

Under-35s have rated gardening in their top five favourite leisure activities. But why are so many people are swapping sweaty clubs for leafy shrubs?
Tim Vine, winner of the Funniest Joke of the Fringe award: 'making a quip as funny as possible is an art'

Beyond a joke

Tim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

Sadly though, the Lawrence of Arabia star is not around to lend his own critique
Wicken Fen in Cambridgeshire: The joy of camping in a wetland nature reserve and sleeping under the stars

A wild night out

Wicken Fen in Cambridgeshire offers a rare chance to camp in a wetland nature reserve
Comic Sans for Cancer exhibition: It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans

Comic Sans for Cancer exhibition

It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans
Besiktas vs Arsenal: Five things we learnt from the Champions League first-leg tie

Besiktas vs Arsenal

Five things we learnt from the Champions League first-leg tie
Rory McIlroy a smash hit on the US talk show circuit

Rory McIlroy a smash hit on the US talk show circuit

As the Northern Irishman prepares for the Barclays, he finds time to appear on TV in the States, where he’s now such a global superstar that he needs no introduction
Boy racer Max Verstappen stays relaxed over step up to Formula One

Boy racer Max Verstappen stays relaxed over step up to F1

The 16-year-old will become the sport’s youngest-ever driver when he makes his debut for Toro Rosso next season
Fear brings the enemies of Isis together at last

Fear brings the enemies of Isis together at last

But belated attempts to unite will be to no avail if the Sunni caliphate remains strong in Syria, says Patrick Cockburn
Charlie Gilmour: 'I wondered if I would end up killing myself in jail'

Charlie Gilmour: 'I wondered if I'd end up killing myself in jail'

Following last week's report on prison suicides, the former inmate asks how much progress we have made in the 50 years since the abolition of capital punishment