Fossil Fuels Become Obsolete – The need to stay within a 2 degrees warming scenario, as agreed at the Paris conference, means that not all fossil fuels can be used and burned. Researchers at London’s University College have tried to figure out how much of current reserves need to stay in the ground to reduce the risks of climate change. Their rough estimate is that a maximum of 12% of current coal reserves, 48% of natural gas, and 65% of oil reserves can be extracted under this relatively arbitrary 2 degrees scenario. Similar results were discovered by the oil and gas analyst firm Rystad Energy. To make this happen, gas production could only expand slightly towards 2050, coal extraction would need to be halved by 2030, and oil production needs to be reduced by 2% per year, and thus halved by 2050.
Fossil Fuels Become Obsolete
Canadian tar sands and extra-heavy oil production in Venezuela would be the first to fall victim, as well as the majority of new deep-sea oil discoveries, nor can unconventional shale and tight oil and gas expand substantially. The Carbon Tracker Initiative has estimated the financial impact of ‘stranded assets’ if governments would truly limit oil production expansion. They think, between 2015 and 2025, 20% of future projects would need to be scrapped by oil majors like ExxonMobil, Shell, Total, Chevron, BP, Statoil, and Eni. In total, $2 trillion in new coal mine and oil and gas field investments would need to be scrapped in the next 10 years to meet the Paris Agreement climate goal.
So this could become a serious f inancial threat for fossil fuel companies. The United Nations has set up an organization called the Portfolio Decarbonization Coalition (PDC) which is a growing coalition of institutional investors that seek to eliminate fossil fuel investments from their portfolios. Their 26 members jointly hold $3.2 trillion, an amount as large as almost 5% of the world’s economy. These include the Dutch pension fund ABP, and the Allianz Group, which will no longer invest in companies that derive over 30% of their sales from coal and instead will grow its wind and solar portfolio.
A similar initiative, backed by the UN, has been set up by the 350.org, a group of financial environmental activists, that has convinced 600 institutions to sell stocks and bonds of fossil fuel companies. The most notable divestment member is the Norwegian $900 billion sovereign wealth funds, which has sold off $8 billion in coal assets in its portfolio, impacting 122 companies including E.ON, RWE, Dong, Vattenfall, and Duke Energy.