Are we heading towards a Carbon Bubble?

It seems that there is a growing doubt regarding the efficiency and the results that will be achieved through the Carbon market.

Even worst, recent findings document that there is a potential for a Carbon Bubble which will have tremendous negative effects to carbon trading and subsequently to the efforts for Climate Change abatement.

Here are some of the latest developments, as they are described in the Carbon Tracker report available at the relevant web-site. 

The Carbon Tracker initiative is a new way of looking at the carbon emissions problem. It is focused on the fossil fuel reserves held by publically listed companies and the way they are valued and assessed by markets. Currently financial markets have an unlimited capacity to treat fossil fuel reserves as assets. As governments move to control carbon emissions, this market failure is creating systemic risks for institutional investors, notably the threat of fossil fuel assets becoming stranded as the shift to a low-carbon economy accelerates.

According a research made by the Potsdam Institute, in order to reduce the chance of exceeding 2°C warming to 20%, the global carbon budget for 2000-2050 is 886 GtCO2. Minus emissions from the first decade of this century, this leaves a budget of 565 GtCO2 for the remaining 40 years to 2050.

But the total carbon potential of the Earth’s known fossil fuel reserves comes to 2795 GtCO2. 65% of this is from coal, with oil providing 22% and gas 13%.

This means that governments and global markets are currently treating as assets, reserves equivalent to nearly 5 times the carbon budget for the next 40 years. The investment consequences of using only 20% of these reserves have not yet been assessed!

The fossil fuel reserves held by the top 100 listed coal companies and the top 100 listed oil and gas companies represent potential emissions of 745 GtCO2. This exceeds the remaining carbon budget of 565 GtCO2 by 180 GtCO2.This means that using just the listed proportion of reserves in the next 40 years is enough to take us beyond 2°C of global warming. On top of this further resources are held by state entities.

 Given only 20% of the total reserves can be used to stay below 2°C, if this is applied uniformly, then only 149 of the 745 GtCO2 held by listed companies can be used unabated. Investors are thus left exposed to the risk of unburnable carbon. If the 2°C target is rigorously applied, then up to 80% of declared reserves owned by the world’s largest listed coal, oil and gas companies and their investors would be subject to impairment as these assets become stranded.

The top 100 coal and top 100 oil & gas companies have a combined value of $7.42 trillion as at February 2011. The countries with the largest greenhouse gas potential in reserves on their stock exchanges are Russia, (253 Gt CO2), the United States, (156.5 Gt CO2) and the United Kingdom, (105.5 Gt CO2). The stock exchanges of London, Sao Paulo, Moscow, Australia and Toronto all have an estimated 20-30% of their market capitalization connected to fossil fuels.

The UK has less than 0.2% of the world’s coal, oil and gas reserves, and accounts for around 1.8% of global consumption of fossil fuels. Yet the CO2 potential of the reserves listed in London alone account for 18.7% of the remaining global carbon budget. The financial carbon footprint of the UK is therefore 100 times its own reserves.

London currently has 105.5 GtCO2 of fossil fuel reserves listed on its exchange which is ten times the UK’s carbon budget for 2011 to 2050, of around 10 GtCO2. Just one of the largest companies listed in London, such as Shell, BP or Xstrata, has enough reserves to use up the UK’s carbon budget to 2050. With approximately one third of the total value of the FTSE 100 being represented by resource and mining companies, London’s role as a global financial centre is at stake if these assets become unburnable en route to a low carbon economy.

The Carbon Tracker report mentions that “In the past decade investors have suffered considerable value destruction following the mispricing exhibited in the dot.com boom and the more recent credit crunch. The carbon bubble could be equally serious for institutional investors – including pension beneficiaries - and the value lost would be permanent”.

The authors believe (and I also share the same opinion) that today’s financial architecture is not fit for purpose to manage the transition to a low-carbon economy and serious reforms are required to key aspects of financial regulation and practice firstly to acknowledge the carbon risks inherent in fossil fuel assets and then take action to reduce these risks on the timeline needed to avoid catastrophic climate change.

They also add that “The regulatory regimes covering the capital markets need realigning to provide transparency for investors on the assumptions behind valuing unburnable carbon. With the global economy following the fortunes of the financial sector, it is essential to create capital markets which are robust enough to deliver an economy which can prevent dangerous climate change. Unless a more long-term approach is required by regulators, the shift in investment required to deliver a low carbon future will not occur.”

After – tsunami waste management: a global problem

We are getting close to March 11, 2012, the first anniversary of the earthquake and tsunami that devastated Fukushima, Japan. Unprecedented pictures and videos are definitely still through our eyes and minds whenever we remember the M 9.0 earthquake that hit the coast of Honshu, Japan's most populous island near Sendai, the capital city of Miyagi Prefecture, on March 11, 2011 at 05:46:23 UTC (roughly 231 miles Northeast of Tokyo).

More than 16.000 dead people, hundreds of billion dollars infrastructure damages and a very serious leak of nuclear radiation from the Fukushima nuclear plant were the main direct consequences of this catastrophic event.

From a waste management point of view, there is still a huge problem regarding the million tons of waste, mainly debris but including a lot of hazardous waste too, that were created during the tsunami strike. Just to have an idea of the disaster, only in Sendai city there is more than one million tons of waste wiring to be removed and managed during the next 3 years. The cleanup is expected to cost at least $1.3 billion!

Just imagine the overall quantity of debris is expected to be more or less around 25 million tons. As for the overall cost, it is expected to far exceed the $3.2 billion required to dispose of 15 million tons of debris in the Japanese city of Kobe after its 1995 earthquake.

A second problem, with really global dimensions is related to the mass of debris that was washed out to sea as floodwaters receded from the land, and some of that wreckage continues to float around the ocean.

According to a recent report by the Hawaii-based International Pacific Research Center ( IPRC), so far, the debris field has spread in an area that is approaching 4,000km by 2,000km.

It is estimated that more than a million tons of waste are floating and most of it is headed eastwards, moved by the Kuroshio Current, the North Pacific equivalent of the Gulf Stream in the Atlantic.

IPRC creates daily updates of the debris movement through Pacific Ocean(see tracking debris).

 Updates are provided by extensive modeling work led by Nikolai Maximenko. According all estimations more than 90% of the tsunami debris that has not sunk will move into the North Pacific "Garbage Patch", a long-lived circulation of floating rubbish trapped by the North Pacific Gyre.

I think that there are three comments, related to waste management that we can make in the aftermath of the Japanese tsunami.

First, although in Japan there is one of the most advanced waste management systems in the world, current systems and technologies were simply inappropriate to manage the astonishing quantities of waste produced by the tsunami.  

Second, please imagine what will be the consequences if the earthquake target was not Japan, but another country with less technologies and resources available, maybe characterized by poverty and low living standards. And definitely, such disasters can be also produced not only by earthquakes but from extreme weather phenomena as well, as it is the aftermath of the New Orleans’ disaster.

Third, the floating tsunami debris is one more alarming signal for the need to manage the ocean garbage problem. If we simply wait for a magic solution that will suddenly appear, the problem will be more and more difficult to be solved and the cost will be really prohibitive.

It seems that we need to do much more in order to create waste management emergency responses to events that create really global impacts! The global waste management community has to start an intensive collaboration in order to create networks and cooperation patterns that will allow the management of debris in such extreme phenomena and not only. The only thing that will be an appropriate response to the gigantic natural forces that create such disasters is the power of the massive collaboration of human beings, through a variety of different channels. Let’s do it…

Asbestos: A verdict with worldwide consequences!

It was February 14^th, 2012, when a historic decision was made by an Italian Court in Turin.

After a 12 years legal procedure and investigation, Stephan Schmidheiny (65 years old), owner of the Swiss-Belgian industrial group Eternit (ETEX), which was in turn a major shareholder of the Italian subsidiary of Eternit between 1976 and 1986 and the Belgian Baron Jean-Louis de Cartier de Marchienne (90 years old), who was a director and minority shareholder of Eternit Italy, they were both sentenced to 16 years prison by an Italian court in Turin. 

Of course the verdicts are not effective until final, meaning the defendants have the right to go to a Court of Appeal and to the Supreme Court before they must undergo their verdicts.

Schmidheiny and Cartier de Marchienneare considered responsible for the death of 3.000 Italians, including employees, family members and other persons in the vicinity of Eternit’s four factories in Italy. Each of them is entitled to compensations of 95 million € for victims and their families, municipalities and regional authorities, independently of the compensations that the company will be entitled.

The initial investigation started in 1999, after victims’ associations, municipalities involved (Casale Monferatto and Cavagnolo), regional authorities (Piemonte) trade unions and insurers filed a case against the company and its responsible directors.

If you want to find full details of the case, please visit the dedicated blog asbestos in the dock 

I really believe that this is verdict with global consequences.

As far as I know this is the first decision that recognizes so serious and huge consequences of inappropriate solid waste management! It creates new standards about what should be considered safe and environmental sound working environment and about environmental impacts to the neighborhoods.

It also recognizes the importance of the time horizon: inappropriate solid waste management creates serious environmental and health impacts for decades after the completion of waste management activities!

Last but not least, the case is very important because through web – connections and blogs it was globally followed by almost sixty asbestos victims associations. The efforts of the Italian association were fully supported by top experts from different countries, asbestos lawyers shared crucial information on a global scale and the international asbestos community became stronger and more connected. The case will allow asbestos victims worldwide to gain access to evidence that was previously either unknown or simply unavailable.

I think that the waste management community has to celebrate about that decision. And decision – makers, governments, municipalities, operators and companies have to re-think the importance they give (or do not give) to waste management procedures and activities…