Climate change and toxic assets

Fander Falconí

22/09/2014

Opinión

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The assets of oil companies have a toxic effect. The irrational behaviour of markets has moved into the industry of non-renewable energy resources (oil, gas, coal), as accurately described in an article published in The Telegraph by Ambrose Evans-Prichard (1).

We must remember that, previous to the great crisis of central capitalism of 2008, the banks created the so-called financial bubbles, when they gave big loans to persons with little possibility of repayment. US banks, to increase the market, created high risk mortgages, known as “sub-prime” options, with the backing of the Community Reinvestment Act, a law that required the banks to loan to persons who lacked a good credit history. The risk was eluded systematically, which amplified the demand for real estate and hiked housing prices. This was the cause of the sudden growth of the real estate bubble, both in the United States and in Europe.

Now other toxic assets are turning up. These have their origin in the enormous investments of oil companies related to rising costs, due to that fact that the maximum rate of extraction of petroleum on a global scale has apparently already been reached, and because of this there is a decline in hydrocarbon deposits.

This peak production of petroleum involves another factor: the impossibility of extracting all future petroleum reserves due to the environmental impact of burning fossil fuels.

Already in the last three decades, the warning signs are flashing of what is happening in the world due to the obvious manifestations of natural phenomena as an expression of climate change. Scientific research of environmental change and its causes have assumed great importance, since this is the way to understand the evolutionary process of planetary behaviour, and to determine the impact and the responsibility of human societies with respect to this issue.

The decisive information now available allows us to reach conclusions based on reality rather than mere speculation. For the first time in human history, the concentration in the atmosphere of carbon dioxide (CO₂) – one of the principal greenhouse gases –has gone beyond 400 parts per million, now indefinitely or at least for the foreseeable future. This was announced on May 9, 2013, from Mauna Loa, Hawaii, the oldest CO₂ measuring station, set up in 1958. When the study of the phenomenon began, around 1900, the concentration was 300 parts per million (ppm.) According to the measuring instruments, this is now increasing at a rate of 2 ppm per annum. Data now available and the judgements of scientists have alerted us to the unpredictable climatic consequences that will take place on our planet if a concentration of CO₂ above 450 ppm is reached. (2)

Based on information from the International Energy Agency, Evans-Pritchard writes that the global investment in fossil fuels has doubled, in real terms, in the period from 2000 to 2008, reaching 900 billion dollars. In 2013, investments reached 950 billion dollars. The largest investments are in exploration and extraction of oil and gas.

The journal The Economist published an article in 2013, echoing the research undertaken by the Carbon Tracker organization and the Grantham Institute of the London School of Economics, which indicates that the quantity of additional carbon dioxide that the atmosphere can hold (if we are not to exceed by two degrees the increase of temperature on the planet relative to pre-industrial levels) is nine times less than what would be produced by burning the reserves of coal, gas and oil already possessed by private or state enterprises. The implication of this research is that petroleum companies carry a definite quantity of toxic assets in their accounting and that because of this their financial balances are in question.

We are therefore faced with various future problems: peak petroleum that demands high investment due to the growing cost of extraction, and at the same time, the impossibility of exploiting all the reserves, without facing a human collapse. The interests involved are enormous. If there be a limit for micro particles in the atmosphere, in order to avoid crossing the fateful threshold of two degrees Celsius, the fossil fuel industry could lose no less than 28 trillion dollars in gross profits in the next two decades, according to the Telegraph article.

“Only the dose makes the poison”, said Paracelsus. It appears that we are accumulating a toxic dose for our civilization, whose pernicious results will be seen in the medium and the long term.

(Translated for ALAI by Jordan Bishop)

Notes:

[1]

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/109572...

[2] There is a scientific consensus that an increase of more than two degrees Celsius in the average world temperature – due to excessive burning of fossil fuels and the resulting emission of carbon dioxide, the gas that contributes most to global warming – would be catastrophic for humanity. This is the threshold.

- Fander Falconi is a research professor of the Latin American Faculty of Social Sciences (FLACSO).

* The original text was published in ALAI’s Spanish language magazine America Latina en Movimiento, Nº 498, September 2014, on the theme, "Frenar el calentamiento global" (“Curbing global warming”). http://alainet.org/publica/498.phtml

https://www.alainet.org/es/node/103619