page_title: Carbon bubble
section_title: Prospects for orderly bubble deflation
hierarchical_section_title: Carbon bubble / Prospects for orderly bubble deflation
caption_attribution_description: Deutsch: Klimademo Bern vor Schweizerischer Nationalbank
context_page_description: The carbon bubble is a hypothesized bubble in the valuation of companies dependent on fossil-fuel-based energy production, because the true costs of carbon dioxide in intensifying global warming are not yet taken into account in a company's stock market valuation.
  Currently the price of fossil fuels companies' shares is calculated under the assumption that all fossil fuel reserves will be consumed. An estimate made by Kepler Chevreux puts the loss in value of the fossil fuel companies due to the impact of the growing renewables industry at US$28 trillion over the next two decades-long. A more recent analysis made by Citi puts that figure at $100 trillion.
  Analysts in both the petroleum and financial industries are concluding that the "age of oil" has already reached a new stage where the excess supply that appeared in late 2014 may continue to prevail in the future.
  A consensus appears to be emerging that an international agreement will be reached to introduce measures to constrain the combustion of hydrocarbons in an effort to limit global temperature rise to the nominal 2 °C that is consensually predicted to limit environmental harm to tolerable levels.
context_section_description: A planned and orderly transition away from dependence on fossil fuels could prevent a disruptive "bursting of the carbon bubble".  A number of developments are supporting such a transition.
  Government action on climate change
  A detailed academic study of the consequences for the producers of the various hydrocarbon fuels concluded in early 2015 that a third of global oil reserves, half of gas reserves and over 80% of current coal reserves should remain underground from 2010 to 2050 in order to meet the target of no more than a 2 °C rise in average global temperature. Hence continued exploration or development of reserves would be extraneous to needs. To meet the 2 °C target, strong measures would be needed to suppress demand, such as a substantial carbon tax leaving a lower price for the producers from a smaller market. The impact on producers would vary widely depending on the cost of production in their areas of operation.  For example, the impact in Canada would be far larger than in the United States. Open-pit mining of bituminous sands in Canada would soon drop to negligible levels after 2020 in all scenarios considered because it is considerably less economic than other methods of production.
  In mid-2015, the Centre for Science and Policy, University of Cambridge published a report assessing the risks from climate change in order to estimate the amount of resources that should be allocated to address them. The report notes that "standard economic estimates of the global costs of climate change are wildly sensitive both to assumptions about the science, and to judgments about the value of human life. They are also likely to be systematically biased towards underestimation of risk, as they tend to omit a wide range of impacts that are difficult to quantify".
  Awareness in the financial industry
  By 2013, there was significant awareness in the financial industry of the risks associated with exposure to companies involved in extraction of fossil fuels. In early 2014, the FTSE Group, BlackRock and the Natural Resources Defense Council collaborated in the creation of a stock market index series that excludes companies linked to exploration, ownership or extraction of carbon-based fossil fuel reserves. These indices are intended to make it easier for investors to steer their investments away from such companies. It has been proposed that companies be required by law to report on their greenhouse gas emissions and assess the risk this could pose to their future financial performance. According to Christiana Figueres, UNFCCC, companies have a duty to shareholders to move to a low-carbon economy, because of the effects of the carbon bubble.
  Divestment campaigning
  The ongoing fossil fuels divestment campaign in universities, churches and pension funds contributes to divestiture from fossil fuel companies. By late 2015, this divestiture was reported to reach $2.6 trillion, by September 2019, total divestment commitments had grown to an approximate value of $11.48 trillion.
  In September 2019, when the University of California announced, it will divest its $83 billion in endowment and pension funds from the fossil fuel industry, UC officials said, they made it for financial reasons: "We believe hanging on to fossil fuel assets is a financial risk."
  Cheaper clean energy
  The price of renewable energy is continually dropping. As of 2014 new wind power is cheaper than new coal and gas power in Australia, China and the United States. Also the electricity produced from a photovoltaic roof system is cheaper than the electricity from the grid in many countries and places in the world.
  Real pollution control
  Fossil fuels are known for their huge negative externalities or hidden costs. Tackling this market failure will make alternative energies more competitive and will reduce the consumption of fossil fuels.
  Cancellation of government energy subsidies
  According to the International Monetary Fund, governments around the world gave $523 billion direct subsidies for fossil fuels in 2011. If a carbon tax of $25 per ton of CO
  2 is included the 
caption: Inflatable carbon bubble asking the Swiss National Bank to divest from fossil fuels (2019).
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