In February 2012, following engagement by Carbon Tracker Initiative and a number of financial and environmental stakeholders, the Bank of England recognised climate change as a potential systemic risk and committed to provide twice yearly reports on exposure to it. However, as yet no mention has been made of climate change risk in these reports. The new analysis is a clear signal that carbon assets pose a systemic risk to financial stability. As such, Carbon Tracker and Grantham are publicly calling for regulators to stress test reserve levels and production plans against the 2°C scenario and report back on the status of the market.
Source: Carbon Tracker Initiative and Grantham Research Institute on Climate Change and the Environment at London School of Economics and Political Science.
Notes:
About the research: The Grantham Research Institute on Climate Change and the Environment provided analysis of the carbon budgets associated with various global warming targets, including the potential impact of CCS. Carbon Tracker analysed the coal, oil and gas reserves of the largest fossil fuel extractive companies listed on stock exchanges. These reserves were translated into potential CO2 emissions and linked to the relevant stock exchanges and financial data.
Climate Change Target: Governments have committed under the Cancún Accord to reducing annual emissions in line with a 2°C target (above which the level of global warming is considered to create unacceptable risks from sea level rise and other impacts), but the financial markets are assuming that emissions will carry on increasing.
Global Fossil Fuel Reserves: According to the International Energy Agency (IEA), total fossil fuel reserves, including state owned assets, are equivalent to 2860 billion tonnes of CO2 (World Energy Outlook 2012).
