Carbon bubble

A report published on 18 April accused stock markets of over-valuing the world’s oil, coal and gas reserves. It argued that at least two-thirds of the reserves will have to remain underground, and hence be valueless, if we are to avoid the worst effects of climate change.

The prediction came from Professor Lord Stern at the London School of Economics in a report entitled Unburnable Carbon 2013, a follow-up to a report published two years ago. He suggested that fossil-fuel reserves were being valued by speculators on the assumption that governments would take no action to reduce carbon emissions or that the speculators would get enough warning to bail out before prices crashed.

With the dash for gas effectively boosting an already overblown carbon bubble, it’s up to the gas industry itself to decarbonise the supply to safeguard its place as a primary global energy source.

Oil and Gas News, 17 Apr. 2013.

The term carbon bubble began to appear in 2009 among warnings of overheated speculation in carbon credits. These permit industry to burn fossil fuels and so emit the carbon dioxide that is the main contributor to global warming. It became linked to speculation in the value of the underlying fossil fuels themselves in 2011:

Fund managers are pushing for listed energy companies to take restrictions on carbon emissions into account when they report oil, coal or gas reserves in the wake of research that argues the potential bursting of a “carbon bubble” could hit share prices.

Financial Times, 17 Jul. 2011.

The bubble part of this newish term has meant something fragile, unsubstantial, empty or worthless since the end of the sixteenth century. It started to be applied to some commercial or financial scheme that wasn’t all it seemed with the infamous South Sea and Mississippi bubbles of 1720. The image is of intense speculation inflating values followed by an abrupt collapse and failure like a bursting bubble. Since then we’ve had lots of bubbles, such as the US stock-market bubble of the 1920s that led to the 1929 crash. The term has become much more widely used in recent decades, such as in financial bubble and commodities bubble. The past decade alone has given us dot-com bubble, banking bubble and housing bubble among others. In a bubble economy a national economy is inflated by a financial boom.