Oil, gas and coal companies face financial disaster if they ignore the implications of the Paris climate change accord and should be required to tell investors how they will avoid such threats, a British economist has warned.
Lord Nicholas Stern has told a climate task force set up by the Bank of England governor, Mark Carney, that the gap is disturbing between what politicians signed up to in the Paris agreement struck in December and what fossil fuel companies are assuming.
“This gap should alarm policy-makers and central bankers,” he says in a submission to the task force, chaired by Michael Bloomberg, the former New York City mayor, and due to report in December.
The body is supposed to develop uniform, voluntary disclosure standards that companies can use to show investors, banks and insurers how they are dealing with climate-related financial risks.
The world’s economy is still overwhelmingly dependent on oil, coal and gas, the fossil fuels that make up nearly 80 per cent of primary energy use and are a leading source of the greenhouse gases driving global warming.
Under the Paris accord, nearly every country has agreed to spell out at regular intervals how it will tackle greenhouse gases so that net annual emissions eventually fall to zero.
Lord Stern, author of a 2006 UK study on the economics of climate change, said that, unless this shift is handled carefully, fossil fuel assets could be hit by “mass scrapping and stranding”.
“If an oil company does not believe global policy makers will adopt the measures necessary to attain the decarbonisation outlined in the Paris Agreement, then they need to be explicit about this,” he says in the task force submission. It was co-authored by Dimitri Zenghelis, co-head of policy at the Grantham Research Institute on Climate Change at the London School of Economics.
“From an investor point of view, it is one thing for a business to assume that governments were not serious in Paris, but it is quite another to pin their entire strategy on this being so,” the submission says.
Most oil and gas companies publicly acknowledge scientists’ findings about the changing climate. Some in Europe, such as Royal Dutch Shell and BP, have accepted recent shareholder resolutions demanding greater disclosure about climate risks. But many companies still say they expect a steady rise in global demand for fossil fuels for at least the next 20 years.
US group ExxonMobil, for example, says a combination of economic growth and about 2bn extra consumers by 2040 mean global energy demand will probably grow by about 25 per cent from 2014 — an increase equal to the total energy used in the Americas today.
“Like all credible forecasts, we see fossil fuels continuing to shoulder the bulk of societal needs in the future,” the company says.
Lord Stern says businesses should consider both the physical threat of a changing climate as well as the financial risks posed by tougher government rules to stem emissions or climate-linked lawsuits against fossil fuel companies.
Even without such action, the pace of technological change could spur so much growth in low-carbon products, such as electric cars, that demand for fossil fuels falls faster than expected, he says.
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