The Financial Times – Martin Wolf

How much of the world’s fossil fuel reserves will eventually be burnt? This is not just a question for those concerned with climate policy. It is aLso a question for investors even if they believe (absurdly, in my view) that the science of climate change is a hoax.

What, they must ask themselves, would it mean for my investments in fossil fuel exploration and production if policy makers acted on their expressed belief in the science of climate change? Where would that leave investments in companies that own reserves today and are investing in exploration and additional production for tomorrow? Might all this spending prove a disastrous waste of resources that would be better deployed elsewhere?

Unburnable Carbon 2013, a report produced by London-based non-governmental organisation Carbon Tracker and the Grantham Research Institute on Climate Change and the Environment at the London School of Economics, raises precisely this question. The conclusion is quite simple: burning known reserves of fossil fuels is incompatible with meeting the climate targets governments have set themselves. This being so, prudent investors should apply a discount to both the value of those reserves and returns on new investments in this sector. It is possible that much of this additional spending would prove fruitless. At worst, these assets might be “stranded” forever.

To read the full article visit the Financial Times website.