OIL, GAS and coal companies could face short and long-term economic consequences if they ignore the COP21 Paris climate agreement, according to a new report by UK economist Lord Nicholas Stern.
Lord Stern and climate policy maker Dimitri Zenghelis have warned in a report to the Task Force on Climate-Related Financial Disclosures (TCFD) that there was a gap between what politicians agreed to in December 2015 and the policies being made by fossil fuel companies to accommodate those commitments in their long-term business strategies.
In December 2015, 190 countries agreed to cap CO2 emissions to limit global warming to 2°C by 2050, and to allocate US$100bn/y for cleaner energy technologies in developing countries.
“This gap should alarm policy-makers and central bankers: it suggests either asymmetric information or a lack of credibility in policies,” Lord Stern said in a submission to the TCFD chair and former New York City mayor, Michael Bloomberg.
As fossil fuels still make up around 80% of the world’s energy needs, Lord Stern argued that companies should not only disclose the “carbon exposure” of past activities, but should also undertake risk assessments for potential economic liabilities, including business risks from new policies to reduce greenhouse gas emissions.
The report said that failure to take the commitments of the Paris accords into account for future strategies could result in more expensive routes for decarbonising and diminished returns for investors. It said this could lead to assets being stranded if cutbacks must be made suddenly.
In order to commit to the 2°C target (with 50% profitability), no new emitting electricity infrastructure can be built after 2017, according to Lord Stern, unless other electricity infrastructure is retired early or retrofitted with carbon capture technologies. Most energy companies have not yet announced any such strategies. The report also recommended that the TCFD ensured the consistent and comparable reporting of companies’ business and climate models throughout the G20.
The TCFD was set up in the wake of the Paris agreement by Bank of England governor Mark Carney to “develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders and insurers”. The task force is due to publish its final report and recommendations by the end of 2016.
Lord Stern first published conclusions on the economics of climate change to the UK government in 2006. In the 700 page document he advocated for early action on climate change from carbon intensive industries to mitigate the increasing cost of tackling the problem. In 2008, he expanded his conclusions to call for a challenge on deforestation and a higher price for carbon.
Most fossil fuel companies have already publicly acknowledged climate change findings, according to the FT. Shell and BP, have accepted recent shareholder resolutions demanding greater disclosure about climate risks. However, many companies such as ExxonMobil still say they expect a steady rise in global demand for fossil fuels and it anticipates to provide for an additional 2bn consumers by 2040.
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