The so called 'carbon bubble' - which refers to the overvaluation of oil, gas and coal mining companies because of the need to shift from fossil fuels to renewable energy sources - poses a growing risk to our economies.
If we want to have a chance to limit global warming below 2°C and therefore avoid harmful climate change the amount of fossil fuels that can actually be burnt is limited, and the majority of fossil fuel reserves would become stranded assets. Today private companies own about a 1/4 of fossil fuel reserves. If a large part of these reserves cannot be extracted, that reduces the valuation of these companies and their ability to repay their debt. The carbon bubble therefore poses serious risks to the financial sector given the financial institutions´ large exposures to oil, gas and coal mining companies through equity, bond, and loan portfolios.
This report, which is the latest in our Green New Deal series, can be downloaded or you can order a free print copy by emailing your details to info (at) gef.eu.