Scientists have claimed that it is a matter of when and not if for carbon bubble arrival and this could wipe out trillions from the global economy. Researchers suggests that the momentum behind technological change in the global power and transportation sectors will lead to a dramatic decline in demand for fossil fuels in the near future.
Fossil fuel stocks have long been a safe financial bet. With the International Energy Agency projecting price rises until 2040, and governments prevaricating or rowing back on the Paris Agreement, investor confidence is set to remain high.
According to scientists, this will now happen regardless of apparent market certainty or the adoption of climate policies – or lack thereof – by major nations. Detailed simulations produced by an international team of economists and policy experts show this fall in demand has the potential to leave vast reserves of fossil fuels as “stranded assets”: abruptly shifting from high to low value sometime before 2035.
Such a sharp slump in fossil fuel price could cause a huge “carbon bubble” built on long-term investments to burst. According to the study, the equivalent of between one and four trillion US dollars could be wiped off the global economy in fossil fuel assets alone. A loss of US$0.25 trillion triggered the crash of 2008 by comparison.
Publishing their findings today in the journal Nature Climate Change, researchers from Cambridge University (UK), Radboud University (NL), the Open University (UK), Macau University, and Cambridge Econometrics, argue that there will be clear economic winners and losers as a consequence.
Japan, China and many EU nations currently rely on high-cost fossil fuel imports to meet energy needs. They could see national expenditure fall and – with the right investment in low-carbon technologies – a boost to Gross Domestic Product (GDP) as well as increased employment in sustainable industries.
However, major carbon exporters with relatively high production costs, such as Canada, the United States and Russia, would see domestic fossil fuel industries collapse. Researchers warn that losses will only be exacerbated if incumbent governments continue to neglect renewable energy in favour of carbon-intensive economies.
The study repeatedly ran simulations to gauge the outcomes of numerous combinations of global economic and environmental change. It is the first time that the evolution of low-carbon technologies has been mapped from historical data and incorporated into ‘integrated assessment modeling’.