Double, double toil and trouble…

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Posted 25 August 2011

 

 

Double, double toil and trouble ......

A dark Cave. In the middle, a Caldron boiling. Thunder.
Enter the three Witches.

1 WITCH. Thrice the brinded cat hath mew'd.
2 WITCH. Thrice and once, the hedge-pig whin'd.
3 WITCH. Harpier cries:—'tis time! 'tis time!
1 WITCH. Round about the caldron go;
In the poison'd entrails throw.
Toad, that under cold stone,
Days and nights has thirty-one;
Swelter'd venom sleeping got,
Boil thou first i' the charmed pot!

ALL. Double, double toil and trouble;
Fire burn, and caldron bubble.

Shakespeare, Macbeth (Act IV, Scene 1)

 

The three witches in Shakespeare’s Macbeth provide that timeless construct for the very best of dramatic tragedies:

• expectation of a near certain future (“All hail, Macbeth! that shalt be king hereafter”);
• with laughable odds against (“Macbeth shall never vanquish'd be, until Great Birnam wood to high Dunsinane hill shall come against him”)
• and the final undoing of the dead-certain outcome with disastrous consequences (Enter Macduff with Macbeth’s head “The usurper’s cursed head.....”; Act 5, final scene)

Peak oil fails to captivate its audience

'Peak oil' has been the construct that some in the climate change space have deployed to set the stage for the mighty come-uppance for fossil fuels in the face of rising global warming gases in our atmosphere. It’s not been a gripping story despite some geologists arguing that peak oil is either very close or has passed, and the world will never again be able to produce the 83m barrels per day that flowed in 2008. The plot hasn’t caught the imagination of policymakers who remain somewhat complacent about setting low carbon strategies that anticipate and avoid the mayhem of peak oil (reduced supply, rising prices).

Can ‘the carbon bubble’ take centre stage?

Now, the recently published Carbon Tracker Initiative’s “Unburnable Carbon – Are the world’s financial markets carrying a carbon bubble” offers a new plot -- much juicier and more compelling than ‘Peak Oil’. It goes like this:

• To contain global warming to 2°C our global carbon emission budget for 2010-2050 is ~560GtCO₂ over the next 40 years
• Total fossil fuel reserves are estimated at ~2,800GtCO² i.e. 5x the recommended carbon budget
• Governments and markets are currently treating as assets 5 times the recommended ‘dosage’ of fossil fuels
• The top 100 coal plus top 100 oil and gas companies currently report potential reserves equivalent to ~750GtCO₂; 34% greater than the 560GtCO₂ budget
• This means that using reserves just from the top-100 listed coal, oil and gas companies will tip us over the recommended 2°C edge
• Collectively, these top listed companies have a combined market capitalization of US$7.2trillion

Investment instruments promise modern drama

Actually, we are already seeing drama playing out on the fringes of the carbon market which directs $billions to carbon reduction projects under regulated and voluntary regimes. The currency of the carbon markets is carbon credits (tonnes of CO₂). They have a market value based on a very complex set of factors that affect supply and demand, and prices have proven highly volatile in the past. When used as an investment instrument, carbon credits are highly speculative as they may or may not appreciate in the future.

Some individuals, alarmed about their exposure to the carbon bubble in their investments and pensions, are tuning into the siren song of new businesses cropping up to sell carbon credits as a ‘sure fire’ alternative to the fossil-ridden stocks that dominate conventional investment portfolios. This type of sales activity of highly specialized instruments to unsophisticated individual investors should be governed by capital market regulators -- but are not. Equally worrying, regulators aren’t showing any appreciation of the systemic risks and exposure capital markets could experience if the bubble highlighted in the Carbon Tracker Initiative report is real and grows unchecked.

And so, to restate the Macbeth witches for this very modern drama...

Double, double toil and trouble;
fossils burn, or carbon bubbles.

 

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Jonathan Shopley

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