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Pitch

If Banks are to big to FAIL, are Fossil Fuels Co. to BAD to BAIL? Let us adjust the Financial Markets instead, deflate the Carbon Bubble.


Description

Summary

The main factor blocking progress in fighting GHG emissions is that all carbon deposits (fossil fuels) in the ground are listed as assets on company's balance sheets, which in turn is reflected in the company's share prices.

Those share prices are - if we take Global Warming serously and agree we should stop it - greatly inflated and by their total value could very well threaten the stability of the whole Financial System (Think 1929 crash, maybe worse)

To maintain their Share Value companies need to discover new carbon deposits every year (to replenish what they sold), but the expense and difficulty of recovering those deposits is *not* reflected in the value of the new assets. In fact, many assets are overvalued by overestimating the recoverable deposits and their discovery, exploration, is mostly paid for by US, through huge subsidies, tax breaks etc.

We should have the accounting rules adjusted/changed, so that over a period (say 5 or even 10 years?) the existing carbon deposits are devalued, no new deposits added, so that at the end of that period no more carbon deposits are listed on the balance sheets, underpinning share value.

Removing those 'assets' from the equation will make it extremely unprofitable to continue exploring for *new* deposits, especially as those companies know full well we have more Carbon Deposits than we can burn anyway!

Deflating the carbon bubble in a timeframe every one knows beforehand will help maintain stability on the financial- & stockmarkets.

At the same time there should be a agreed-upon valuation of all forms of sustainable energy. An Oil company can become an *Energy Company* where sustainable forms of enery underpin share value, with Carbon Credits thrown in.

If Fossil Fuel companies do not invest that money in sustainable energy of their own accord maybe a little prodding might be in order, but I do not think so.

I believe the Financial World could be instrumental; to protect stability, shareholders and in the end the climate. 


Category of the action

Reducing emissions from electric power sector.


What actions do you propose?

We should have the accounting rules adjusted/changed, so that over a period (say 5 or even 10 years?) the existing carbon deposits are devalued and no new deposits added, so that at the end of that period no more carbon deposits are listed on the balance sheets, underpinning share value.

Removing those 'assets' from the equation will make it extremely unprofitable to continue exploring for *new* deposits, especially as those companies know full well we have more Carbon Deposits than we can burn anyway!

Deflating the carbon bubble in a timeframe every one knows beforehand will help maintain stability on the financial- & stockmarkets.

At the same time there should be a agreed-upon valuation of all forms of sustainable energy. What was f.i an Oil company can become an *Energy Company* where sustainable forms of enery underpin share value, perhaps with Carbon Credits thrown in.


Who will take these actions?

The Financial World is at risk: if nothing is done SOON a carbon bubble MUST burst and a crash will ensue.

That means Financial World, Shareholders, Fossil Fuel companies, Governments even, ALL have an interest in acting. 350.org is correct in saying most Carbon Deposits cannot be used, burned safely. They figure companies are overvalued by 2/3rds.. 

Their Divestment campain will take a long time, which we do not have, and might result in a sudden nosedive in shareprices which is bad for business. Why not work hand-in-hand for the common interest; why not devise a common interest?

Who is tasked with maintaining financial stability?

BIS  ----  Established on 17 May 1930, the BIS is the world's oldest international financial organisation.    

     The mission of the Bank for International Settlements (BIS) is to serve central banks in their pursuit of monetary and financial stability, to foster international cooperation in those areas and to act as a bank for central banks.    

     The head office is in Basel, Switzerland and there are two representative offices: in the Hong Kong Special Administrative Region of the People's Republic of China and in Mexico City.

Of course there is also the World Bank


Where will these actions be taken?

Bookkeeping rules worldwide must be adjusted.

BIS Bank, World Bank, National Banks & Treasuries, G20...


How much will emissions be reduced or sequestered vs. business as usual levels?

For starters there should be no more EXPLORATION activities. Given that over half a Billion US$ is involved yearly that must be a "sizeable" amount of emissions reduced. :-)

World Resources Institute charts put Extraction, refining & processing total at 6,3% of ALL GHG emissions. Noteworthy is the CH4 at maybe as much as 40% of that.

Most comments - f.i. C. Figueres - suggest 75% of all carbon deposits should stay in the ground. Of the "carbon budget" generally used we've used some 560 GtC and the total allowed is put at 860 GtC to 1000 GtC. The 25% therefor is between 300 and 440 GtC and AT LEAST 900 GtC should stay in the ground, hence be the reduction.

Stricktly speaking this contest looks at the Electricity Sector which may account for somewhat less than 25% of the total.

So, a quick estimate would yield a figure of some 225 GtC reduction in the electricity sector (as they simply MUST adapt to non-fossilfuel energy production).


What are other key benefits?

There should be no more EXPLORATION activities. Given that over half a Billion US$ is involved yearly that must be a "sizeable" amount that can / will be invested in forms of Sustainable Energy.

Once Sustainable forms of energy are assets on the balance sheets and the number of productive years and emissions avoided are accurately reflected in the asset valuation:

  • shareholders have assurance of the company value
  • companies have an incentive to invest in sustainable energy
  • the best forms of sustainable energy will add most to asset value
  • the best forms will get the most "boost"

 

  • subsidies that were used to camouflage uneconomical exploration for carbon deposits will by default now support sustainable energy


What are the proposal’s costs?

Man hours here & there, some travel expenses, communications. No real big hardware costs needed


Time line

Change the rules for financial accounting in 2014. Implement by start of next year, 2015, as first year carbon deposits value will depreciate.


Related proposals


References