Carbon Tracker: Can the financial sector help the planet?

When we think about means to ensuring a clean environment and help to reduce the global warming effect, the first things that come to mind are the most obvious: reducing the consumption of fossil fuels, transitioning to a clean energy system and reducing the creation of waste. Nevertheless, there are many factors underlying the planet’s submission to “the tyranny of the hydrocarbons”. Carbon Tracker (whom we have been following since 2014) is a “think tank” which proposes a reorganisation of the financial system, analysing the large impact of the energy transition on the capital markets and the role of the investments made by the Oil & Gas sector.

Carbon Tracker are “experts in financial markets, energy and law and, through research and investigation, propose to advise companies on the risks and opportunities for investors in a future without hydrocarbons.”

The basis of their theory (demonstrated in (multiple reports) is that, the paradigm shift of the markets and industry is beginning to favour those which reduce their emissions and decarbonise. Over dozens of years, the economic and financial systems have betted on the natural gas, coal and petrol industries. In a direct or direct way, the majority of those investments have some relation to the hydrocarbon fuels industry, or is related to it. Carbon Tracker attempts to push this capital out of the Black Valley, and into the Green Valley, informing the managers of capital assets and funds on the risks of ending up with “stranded assets.”

Carbon Tracker pushes the capital boulder out of the Black Valley (copyright Tano, 2017)

The need to change the model

Times are changing, and, moreover, this change is speeding up. That’s why it’s necessary that the energy transition, which is already creating many new industries, is reflected in the stock markets. The Paris Agreement and various different measures are leading many sectors to consider, today, new sources of energy. And this is happening quickly, meaning that there is a real risk that the investments in those markets change focus and direction.

The existence of a “carbon budget”, at the global level, makes it imperative to limit the amount of accumulated emissions in order to avoid the much-feared 2ºC average temperature rise, which would represent serious damage to the world’s climate. If the markets and the financial capital don’t support the energy transition, it will be difficult to meet the objective of limiting temperature rise. The argument put forward by Carbon Tracker is that investors are now exposed to major losses of value in their investments, as has already been witnessed by the European electric utilities and many coal mining firms in the United States. Carbon Tracker advises that “companies have not sufficiently taken into account the possibility that levels of demand (for their products or services) will significantly reduce in the future through technology advances and regulatory restrictions. Our role is to help the markets understand and quantify the implicit risks.”

One recent study indicates that the oil & gas industry could see up to 2.3 trillion dollars threatened in projects in the period to 2025, as a result of being incompatible with the commitment to reduce emissions of greenhouse gases and the advancement of clean technologies. This would be similar to what happened to Kodak during the advance of digital photography. This could result in a large part of the industry ending up as stranded and valueless within a market that seems to be firmly betting on a more ecologically-sustainable future.