This new research from Carbon Tracker and the Grantham Research Institute on Climate Change and the Environment at LSE calls for regulators, governments and investors to re-evaluate energy business models against carbon budgets, to prevent a $6 trillion carbon bubble in the next decade.

Unburnable carbon 2013: Wasted capital and stranded assets has revealed that fossil fuel reserves already far exceed the carbon budget to avoid global warming of 2°C, but in spite of this, spent $674billion last year to find and develop new potentially stranded assets.

Key Findings

The carbon budget deficit

Between 60-80% of coal, oil and gas reserves of publicly listed companies are ‘unburnable’ if the world is to have a chance of not exceeding global warming of 2°C

  • The total coal, oil and gas reserves listed on the world’s stock exchanges equals 762GtCO2 – approximately a quarter of the world’s total reserves;
  • If you apply the same proportion to the global carbon budgets to have an 80% chance of limiting global warming to 2°C, their allocation of the carbon budget is between 125GtCO2 and 225GtCO2, illustrating the scale of ‘unburnable carbon’;

  • This diagram shows that even a less ambitious target of 3°C would still apply significant constraints on our use of fossil fuel reserves;
  • However companies in the coal, oil and gas sectors are seeking to develop further resources which could double the level of potential CO2 on the world’s stock exchanges to 1,541billion tonnes;

Stranded assets

Globally, coal reserves are centred in Pacific and Eastern regions, whilst oil is predominant in Northern and Western regions

Even if CCS is deployed in line with an idealised scenario by 2050, this would only extend fossil fuel carbon budgets by 125GtCO2

  • This is equivalent to 12-14% (50-80% probability) of carbon budgets to limit global warming to 2°C and to only 4% of total global reserves;
  • As the idealised scenario below illustrates, CCS will only come online at scale from 2030 onwards, by which point the carbon budget may have been used up.


Wasted capital

Company valuation and credit ratings methodologies do not typically inform investors about their exposure to these stranded assets, despite these reserves supporting share value of $4 trillion in 2012 and servicing $1.27 trillion in outstanding corporate debt over the same period. We need to challenge these methodologies

  • To avoid systemic risks such as climate change, investors will have to demand to go beyond the traditional definition of risk as underperforming the benchmark
  • The rebalancing and redistribution of funds if required to protect shareholders’ interest and prevent wasted capital, the scale of which can be seen below. Greater understanding of the uncertainty and risk around fossil fuels can help the redistribution of these funds towards alternatives more attractive.




Therefore, this study makes a number of recommendations for action by governments, financial intermediaries, institutional investors and citizens to manage this risk. Click below to read them.