Reviewing Our Budget

In the lead up to the IPCC 5th Assessment Report next week, let’s review the Unburnable Carbon report and remind ourselves how much carbon we have left to burn.

WHO: James Leaton, Nicola Ranger, Bob Ward, Luke Sussams, and Meg Brown, Carbon Tracker Initiative

WHAT: Measuring the amount of capital, assets and infrastructure that is currently overvalued and will be stranded or wasted when we act on climate change.

WHEN: 2013

WHERE: On the Carbon Tracker website

TITLE: Unburnable Carbon 2013: Wasted capital and stranded assets (open access)

As I’m sure all of you RtS readers are aware (and excited about!); the IPCC are releasing the first part of their 5th Assessment Report on Friday September 27th and then slowly drip feeding us chapter by chapter over the next year.

This is exciting for climate nerds like me because the last IPCC report came out in 2007, so it was looking at the state of climate science in a very different world – before the 2008 financial crash, before the weather started getting seriously weird and going haywire, before 98% of Greenland melted one summer, the Arctic Death Spiral, the failure of the 2009 Copenhagen talks…. yeah, a lot has happened since 2007.

So, in preparation for when this international ‘State of the Climate’ report comes out, I thought it would be good to look at the Carbon Tracker’s Unburnbable Carbon report from this year to remind ourselves of the budget of carbon we have left that we can spew into the atmosphere and still have a chance of not totally cooking the climate.

The Carbon Tracker report looks at two different budgets – if we want to have an 80% chance of not going beyond a certain amount of global warming, and if we want to have a 50% chance of not going beyond a certain amount of global warming. Given that we haven’t done much to lower global carbon emissions yet, I think we’ll push to a 50/50 chance of cooking our habitat (humans are great at procrastinating after all), but feel free to be optimistic and look at the 80% option.

Carbon budget from now until 2050 (from paper)

Carbon budget from now until 2050 (from paper)

If we start from the assumption that humanity will act to save ourselves and keep global warming at 2oC or less with a 50/50 chance, we have 1,075 Gigatonnes (Gt) of CO2 left to burn over the next 37 years.

Now, you might ask – what about carbon capture and storage? Everyone says that technology is going to be big! The Carbon Tracker people ran those numbers. The 2015 estimate for carbon capture and storage projects (CCS) is 2.25million tonnes of CO2 being sequestered over 16 projects. The idealised scenario for CCS is that it will be able to sequester around 8Gt of CO2 each year, which Carbon Tracker worked out would be 3,800 projects operating by 2050 and would only reduce the above carbon budgets by 125Gt. It definitely isn’t a ‘get out of jail free and burn the fossil fuels’ card.

Speaking of burning all the fossil fuels – how much do we have left? The World Energy Outlook, which gets released by the International Energy Agency each year estimated in 2012 (the 2013 report will be released in November this year) that there were total assets equivalent to 2,860Gt CO2 in the world. This is enough carbon to cook the atmosphere beyond 3oC and probably into the next mass extinction.

The report rightly points out that if we assume we want to save a livable climate and keep within the above carbon budgets, then between 65-80% of all the listed reserves for fossil fuel companies cannot be burned. It’s simple math: 2,860 is more than double the budget for keeping under 2oC with a 50/50 chance of blowing past the temperature.

But enough about trying not to cook the atmosphere – how about the important things – like what does it mean for financial markets?

Carbon Tracker looked at the capital expenditure by publicly listed fossil fuel companies to work out how much money is being spent trying to find new reserves of fossil fuels that will add to the list we can’t burn and are therefore being over-valued, because the market valuation assumes they will be burned and a profit will be made from burning it.

In 2012, the 200 listed fossil fuel companies spent $674billion on capital expenditure. $593billion of that was spent looking for more oil and gas, while $81billion of that was spent looking for more coal. If these kinds of spending continue (if the companies don’t admit that there is going to be an end to carbon pollution) over the next decade $6.74trillion dollars could be wasted looking for fossil fuels that have to stay in the ground.

As the authors say: ‘this has profound implications for asset owners with significant holdings in fossil fuel stocks’ because what investors are being sold is the lie that these reserves can be profitably sold and burned.

There’s also a lot of risk associated with this. Over the last two years, the amount of carbon being traded on the New York Stock Exchange has increased by 37% and in London it’s increased by 7%. This means that similar to the sub-prime loan crisis that precipitated the 2008 financial crash, all investors are exposed to carbon risk through the over-valuation of fossil fuel companies.

Map of oil, gas and coal reserves listed on world stock exchanges (from paper)

Map of oil, gas and coal reserves listed on world stock exchanges (from paper)

There’s a risk of carbon not being properly managed as a risk within stock portfolios which could create a carbon bubble that will burst as carbon starts being constrained, and there’s also the risk of stranded assets, where the fossil fuel companies sink all the capital expenditure into their projects only to find they can’t burn the carbon and there was no point in building the mine/gas well/oil platform in the first place.

The report states: ‘investors need to challenge the continued pursuit of potentially unprofitable projects before costs are sunk’. This makes sense also because oil and gas are becoming harder to get at (tarsands, tight oil, gas fracking, Arctic drilling), so the cost is going up and the profit margins are getting squeezed, unless the price of oil keeps climbing. This means that fossil fuels are going to increasingly become challenged by lower cost lower carbon options, because mining for sunshine is really not that hard.

So if we agree that we’ll stop burning carbon before we’ve cooked the atmosphere and therefore that means that 80% of the world’s fossil fuel reserves need to stay in the ground, what does it mean for the fossil fuel companies themselves?

Well, they may have some debt problems on the horizon. The report points out that even without a global climate change agreement the coal industry in the USA is looking increasingly shaky, just from new air quality regulations. They point out that if the business models unravel that quickly, these companies may have problems refinancing their debt when they mature in the near future (which is also a risk for investors). They point out that any company with tar sands exposure will also have stranded asset risk because the business model relies on high oil prices to be profitable.

Basically they show that traditional business models are no longer viable in energy markets that will be moving towards decarbonisation and that different information is going to be needed for investors to manage the risk of carbon in their portfolio.

In the final section of the report, Carbon Tracker gives a list of recommendations for investors, policy makers, finance ministers, financial regulators, analysts and ratings agencies for how we can avoid this financial carbon bubble. The recommendations include better regulation, shareholder engagement and resolutions, fossil fuel divestment, and better risk definition.

The full list of Carbon Tracker recommendations (click to embiggen) (from paper)

The full list of Carbon Tracker recommendations (click to embiggen) (from paper)

For what it’s worth, my recommendations would be to remove fossil fuel subsidies, stop looking for new reserves of carbon that we can’t burn and price carbon pollution. And as usual, stop burning carbon.

If We Burn All the Fossil Fuels

“The practical concern for humanity is the high climate sensitivity and the eventual climate response that may be reached if all fossil fuels are burned” – Hansen et al. September 2013

WHO: James Hansen, Makiko Sato, The Earth Institute, Columbia University, New York, NY
Gary Russell, NASA Goddard Institute for Space Studies, New York, NY
Pushker Kharecha, The Earth Institute, Columbia University, NASA Goddard Institute for Space Studies, New York, NY

WHAT: Using deep ocean oxygen isotope ratios to determine the sensitivity of climate forcing for sea levels and surface temperatures.

WHEN: September 2013

WHERE: Philosophical Transactions of the Royal Society A (Phil Trans R Soc A) Vol. 371, No. 2001

TITLE: Climate sensitivity, sea level and atmospheric carbon dioxide (open access)

Ok, firstly, let us just take a moment to geek out about how awesome science is. This paper has looked at what our planet was like millions of years ago by studying at the amount of different oxygen and carbon types in the shells of foraminifera that have been buried at the bottom of the ocean since they died millions of years ago. Science can tell us not only how old they are by dating the carbon in their fossilised bodies, but also what the temperature was too. That is awesome.

Foraminifera from Japan (Wikimedia commons)

Foraminifera from Japan (Wikimedia commons)

The lead author of this paper – Dr. James Hansen is pretty much the Godfather of climate science. He’s been doing climate models looking at the possible effects of extra carbon in our atmosphere since he basically had to do them by hand in the 1980s before we had the internet. He knows his stuff. And so far, he’s been right with his projections.

The paper (which is a very long read at 25 pages) focuses on the Cenozoic climate, which is the period of time from 65.5 million years ago to present. The Cenozoic is the period after the Cretaceous (so we’re talking mammals here, not dinosaurs) and includes the Palaeocene-Eocene thermal maximum where the deep ocean was 12oC warmer than today as well as the cooling from there that led to the formation of the Greenland and Antarctic ice sheets.

The period of time studied by the paper (bottom axis is million years before present) (from paper)

The period of time studied by the paper (bottom axis is million years before present) (from paper)

What does this show us? The warming that eventually led to the Palaeocene-Eocene thermal maximum started around 3,000 years before there was a massive carbon release. The researchers think this carbon release was from methane hydrates in the ocean venting, because there was a lag in the warming in the intermediate ocean after the carbon release.

The thermal maximum had global surface temperatures around 5oC warmer than today, and there was about 4,000 – 7,000 Gigatonnes (Gt) of carbon that was released into the atmosphere to force that kind of warming.

After this warming happened there were ‘hyperthermal’ events (where the temperature spiked again) as the planet slowly cooled, showing how long the recovery time for the planet was from this greenhouse warmed state.

In the warmed world of the Palaeocene-Eocene maximum, sea levels were probably 120m higher than they are now. The researchers found that there’s a snowball effect with changes in ocean temperatures where a -1oC difference in deep ocean temperatures was enough to trigger the last ice age, while sea levels were 5- 10m higher when temperatures were ‘barely warmer than the Holocene’ (which is us – we live in the Holocene).

The researchers found that during the Pliocene, (about 5million years ago) sea levels were 15m higher than today, which they point out means that the East and West Antarctic ice sheets are likely to be unstable at temperatures we will reach this century from burning fossil fuels.

From the data they then tried to work out what the sensitivity of the atmosphere is to extra carbon. This is important to know, because we’re currently changing the chemical composition of the atmosphere much faster than ever before. The previous greenhouse warming that the planet experienced occurred over millennial time scales – the current rate that we’re pumping carbon into the atmosphere is causing change over only hundreds of years.

To work out how sensitive the climate is to being forced by carbon, the researchers used a simplified model where the atmosphere was split into 24 layers to test the rapid equilibrium responses to forcing.

They wanted to find out if we could be in danger of runaway climate change – the most extreme version of which happened on the planet Venus where runaway climate change amplified by water vapour led to a new stable average temperature of 450oC and the carbon was baked onto the surface of the planet and all the water evaporated into the sky. Obviously, humanity will want to avoid that one… Good news is there isn’t enough carbon on this planet for humans to accidentally do that to ourselves until the sun does it to us in a billion years or so.


We’ve avoided this for now (NASA NSSDC Photo Gallery)

The researchers then tested the response to doubling and halving the CO2 in the system, from the 1950 concentration of 310ppm of CO2 in the atmosphere. They found that three halving gives you a ‘snowball Earth’ response of mass glaciations, while in the other direction 1-4x CO2 is when all the snow disappears, which speeds up the feedback (because snow reflects heat) making the fast feedback sensitivity 5oC of global warming. For 8-32x CO2 the sensitivity is approx. 8oC with water vapour feedbacks (what happened on Venus but a smaller scale).

But what do any of these numbers mean?

As the paper says; ‘the practical concern for humanity is the high climate sensitivity and the eventual climate response that may be reached if all fossil fuels are burned’.

So here’s the lesson we need to learn from the Palaeocene-Eocene thermal maximum. For global warming we can assume that 75% of it is from CO2, and the remaining 25% is from other greenhouse gasses like methane and nitrous oxide. If we burn all the fossil fuels we have left in the ground, that’s about 10-15,000Gt of carbon that we could put in the atmosphere.

That gives us 5x the CO2 from 1950, or 1,400ppm. This will give us 16oC of global warming. It will be a world where there’s an average temperature of 20oC on land and 30oC at the poles (the current average is 14oC). Keep in mind also, that 6oC of warming is generally enough for a mass extinction like the dinosaurs.

This will eliminate grain production across most of the globe and seriously increase the amount of water vapour in the air, which means it’s getting more humid (also the water vapour will destroy most of the ozone layer too).

A wet bulb temperature is the temperature with the humidity included. Humans generally live with wet bulb temperatures between 26-27oC up to 31oC in the tropics. A wet bulb temperature of 35oC or above means the body can’t cool down and results in ‘lethal hyperthermia’ which is scientist for it’s so hot and sticky that you die from the heat.

Burning all the fossil fuels will result in a planet with wet bulb temperatures routinely above 35oC, which means we’ll have cooked the atmosphere enough that we’ll end up cooking ourselves.

If the climate has a low sensitivity to this kind of forcing, it will take 4.8x CO2 concentrations to cause an unlivable climate. If the climate is more sensitive, it will take less than that to cook ourselves.

Oh, and the other kicker? The Palaeocene-Eocene thermal maximum took millions of years to take place, so the mammals survived by evolving to be smaller. Our climate change is only taking hundreds of years, which is not enough time for any plants or animals to evolve and adapt.

Basically, if we burn all the fossil fuels, we’re all going down and taking the rest of the species on the planet with us, and we really will be the dumbest smart species ever to cause our own extinction.

So far, James Hansen has been correct with his climate projections. So when he says we can’t burn all the fossil fuels because if we do we’ll cook the planet, I say we pay close attention to what he says. Oh, and we should stop burning carbon.