Bubble, Bubble, Oil and Trouble

Posted on May 19, 2013

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carbon bubbleThe Inevitable Carbon Bubble

We know that climate change is with us and getting worse.  97% of climate scientists say so, as if wasn’t already obvious.  A new study by John Cook of Skeptical Science says that 97% of their published papers say so as well.

(See http://www.skepticalscience.com/97-percent-consensus-cook-et-al-2013.html)

The body of peer-reviewed scientific literature effectively is science.  Thus the science and the scientists agree in equal measure that the climate’s in a mess, fossil carbon is the cause, and if we don’t do something about it, we’re going to fall into a mess we can’t crawl out of.  The quicker we act the more damage we can avoid.

Clear.

If we were listening to scientists and not to Stephen Harper and Christy Clark, not to the Fraser Institute or the Republican Party of the United States or other oily gassy fellow-travelers, we would already be acting decisively on climate.  If we valued evidence over momentary convenience, we’d be riding rapid transit, paying a carbon tax with gladsome willingness, going solar- and wind-powered, eating our veggies, yes, and the carbon bubble would have already popped.  But we haven’t listened to the scientists yet.

We will, though.  When climate change has blown down enough doors and we see the big bad wolf is here, my goodness, we’ll listen to the scientists.  We’ll do something, and we’ll do some more.  We’ll insist everybody does something too, because we all share the same atmosphere.

That’s when the carbon bubble will pop.

The carbon bubble is like any other bubble.  A whole bunch of people will suddenly find themselves with worthless assets.  The recent mortgage bubble burst–depressing the entire world economy–when people realized that the mortgages they had bought were uncollectable and virtually worthless.  The carbon bubble will burst when the assets of fossil fuel companies become valueless in the face of international climate measures.

Since burning fossil fuels causes climate change and burning too much means—as the scientists have been telling us for a long time now—that climate change may become self-perpetuating and irreversible, then measures to curb and finally end the use of fossil fuels are essential—and obvious.

Carbon tax, here we come.  Alternative energy sources, here we come.  Environmental laws, here we come.

Yes, sir.  Inevitably.  Bet the ranch.  Bet the pension fund.

The carbon bubble will pop.

The first to fall will be the dirty fuels.  Conventional oil will most likely last the longest.  It’s high grade, cheap to pull out of the ground and will pay a return on the dollar even with a reduced price.  It will out-compete the other fossil fuel sources easily, and even survive a while in the era of The Death of Carbon

Coal is dirty and will have to pay a lot of tax because of that.  But it’s cheap and plentiful and might last a day or two before shriveling.

still-gaslandFracking is just as dirty as coal owing to methane emissions.  It also pollutes ground water—which will be an increasing issue with the impact of climate change on water—has a short productive life, and gets more expensive as it goes along.  As an industry that’s faltering and fighting off critics already, it’s certain to be one of the first victims of the carbon bust.  (Are you listening, Christy Clark?  This is financial suicide for British Columbia.)

Tar sands oil might go even faster.  The tar sands are already a low grade development, far less productive and immeasurably dirtier than conventional oil.  They are being developed now only because of rising worldwide oil prices.  If the tar sands are to remain viable, those prices must not only remain stable, they must continue to rise, because the nature of the resource is that the richest deposits are being harvested first.  Later deposits are going to be even more low grade, and will require even higher oil prices to be worth digging for.

Unfortunately, the carbon bubble will mean that fossil fuel prices are not going to continue going up.  They’ll go down, because taxes will curb demand and put market weight behind alternative sources of energy.  They’ll go down, because people will grow tired of mortgaging their homes to pay to drive to work, will demand and get viable rapid transit systems, and the demand for fuel will fall that way also.  They’ll go down, because now that they’re paying attention, homeowners will realize that it’s cheaper to grow a tree to shade your house in the summer and buy insulation to keep it warm in the winter than it is to pay endless energy bills to feed the furnace and air conditioner.  They’ll go down, and it won’t be worth developing the tar sands any further.  Alberta will be left with a gigantic dirty oily worthless hole in the ground.  (Are you listening, Stephen Harper?  No, of course he isn’t.)

Double double, carbon bubble.

According to a recent report by the Carbon Tracker Initiative, who put the report together with help from the climate-change research unit at the London School of Economics, the top 200 oil, gas and mining companies spent $674 billion last year searching out and developing fossil fuel resources.  At that rate, over the next decade some $6 trillion risks being wasted on stranded assets, assets that sit on the books but are unusable and worthless.

$6 trillion.  That bubble will make some juicy pop when it goes.

As it will.

Stand back.

See http://thinkprogress.org/climate/2013/04/19/1894051/april-19-news-when-will-the-carbon-bubble-pop-costing-fossil-fuel-investors-6-trillion/

http://www.bloomberg.com/news/2013-04-18/carbon-intensive-investors-risk-6-trillion-bubble-study-says.html

 http://thetyee.ca/News/2013/05/22/Difficult-Oil/?utm_source=daily&utm_medium=email&utm_campaign=220513