Carbon bubble will plunge the world into another financial crisis

by Damian Carrington in The Guardian,

Trillions of dollars at risk as stock markets inflate value of fossil fuels that may have to remain buried forever, experts warn

Carbon bubble will plunge the world into another financial crisis – report

Trillions of dollars at risk as stock markets inflate value of fossil fuels that may have to remain buried forever, experts warn

Carbon bubble : carbon dioxide polluting power plant : coal-fired Bruce Mansfield Power Plant

Global stock markets are betting on countries failing to adhere to legally binding carbon emission targets. Photograph: Robert Nickelsberg/Getty Images

The world could be heading for a major economic crisis as stock markets inflate an investment bubble in fossil fuels to the tune of trillions of dollars, according to leading economists.

“The financial crisis has shown what happens when risks accumulate unnoticed,” said Lord (Nicholas) Stern, a professor at the London School of Economics. He said the risk was “very big indeed” and that almost all investors and regulators were failing to address it.

The so-called “carbon bubble” is the result of an over-valuation of oil, coal and gas reserves held by fossil fuel companies. According to a report published on Friday, at least two-thirds of these reserves will have to remain underground if the world is to meet existing internationally agreed targets to avoid the threshold for “dangerous” climate change. If the agreements hold, these reserves will be in effect unburnable and so worthless – leading to massive market losses. But the stock markets are betting on countries’ inaction on climate change.

The stark report is by Stern and the thinktank Carbon Tracker. Their warning is supported by organisations including HSBC, Citi, Standard and Poor’s and the International Energy Agency. The Bank of England has also recognised that a collapse in the value of oil, gas and coal assets as nations tackle global warming is a potential systemic risk to the economy, with London being particularly at risk owing to its huge listings of coal.

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