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Collapsing share prices of US coal hold warning for BC and Alberta carbon bubbles

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EURO UTILITIES -- The Economist recently profiled a collapse in share prices of fossil fuel heavy utilities in Europe titled "How to lose half a trillion euros". A group of utilities invested heavily in new fossil fuel power plants a few years ago. It turned out to be the wrong bet. Their share prices rose for awhile and then collapsed as the reality of surging renewables, conservation and efficiency stranded many of those new fossil fuel power plants. Over half a trillion dollars in market capitalization vanished. Investors lost big.

GLOBAL COAL -- Goldman Sachs, in a new bombshell report, says that even globally "the window for thermal coal investment is closing." Their research shows China reducing coal burning starting next year.

Meanwhile the world's largest coal mining company, BHP Billiton, is in a fight over an unusual climate activist trying to gain a seat on their board. The activist, Ian Dunlop, used to be a Royal Dutch Shell Plc executive and the chairman of the Australian Coal Association. Hardly a hippy outsider. His bid is backed by the massive California Public Employees Retirement System that holds half a billion dollars in BHP Billiton stock. Just listen to what Mr Dunlop says:

[BHP] face significant loss of shareholder value [by ignoring climate change. It is ] a real impairment to their ability to prosper in the longer term in a low-carbon world ... This is an issue that’s going to permeate every single thing that BHP do.

BC COAL -- Even BC's metallurgical coal isn't exempt. The IEA says demand for it could shrink very rapidly if global thermal coal prices fall. The reason is that high grade thermal coal can replace the much more expensive metallurgical coal from BC.

ALBERTA TAR SANDS -- Study after study has shown that the dirtier Alberta tar sands oil can't compete with less climate polluting sources of oil if there is a carbon price attached to oil. The IEA predicts the global demand for tar sands oil will be far below what has already been approved by Alberta even if the world only holds climate change to a catastrophic 6C of warming.

 

The expansion of this industry requires that investors believe the world will fail to prevent disastrous climate changes. A study by Massachusetts Institute of Technology (MIT) titled "Canada’s Bitumen Industry Under CO2 Constraints" backs up the notion that Alberta's oil sands will struggle to compete in a low-carbon future. Its conclusions are blunt:

The niche for the oil sands industry seems fairly narrow and mostly involves hoping that climate policy will fail...

What pops a carbon bubble is a shift in expectation about what the future holds for a give fossil fuel source. Perceptions of risk can shift quickly and erase shareholder value rapidly. As Jeremy Leggett, head of the influential Carbon Tracker project, said recently:

In my quarter of a century of warning about the climate change threat and advocating the renewable-energy solution, I have never seen anything worry the fossil-fuel incumbency the way the carbon bubble debate has this year.

If you are a diehard carbonhead, this argument is new and dangerous. It does not use ecological or moral levers to try to stop the enormous amounts of capital flowing dysfunctionally to cook the planet. It does not even require governments to regulate emissions in the way they have promised. It simply invites investors to recognise that they might...

... As a consequence, I expect to see a major diversion of investment from fossil fuels to clean energy before long.

That is great news for those hoping for a safe climate future.

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