Arthur J. Villasanta – Fourth Estate Contributor
Cambridge, United Kingdom (4E) – New research suggests that the momentum behind technological change in the global power and transportation sectors will lead to a dramatic decline in demand for fossil fuels in the near future.
The study published in the journal Nature Climate Changeindicates this will now occur regardless of apparent market certainty or the adoption of climate policies — or lack thereof — by major nations.There will be clear economic winners and losers as a result, according to an international team of economists and policy experts from Cambridge University (UK);Radboud University Nijmegen in The Netherlands; the Open University in the UK; Macau University, and Cambridge Econometrics.
Detailed simulations produced by this team show thedrop in demand have the potential to leave vast reserves of fossil fuels as “stranded assets,” and abruptly shifting from high to low value sometime before 2035.
Such a sharp slump in fossil fuel price could cause a huge “carbon bubble” built on long-term investments to burst. According to the study, the equivalent of $1 trillion to $4 trillion could be wiped off the global economy in fossil fuel assets alone. A loss of US$0.25 trillion triggered the crash of 2008 by comparison.
Japan, China and many EU nations currently rely on high-cost fossil fuel imports to meet energy needs. They could see national expenditure fall and — with the right investment in low-carbon technologies — a boost to Gross Domestic Product (GDP), as well as increased employment in sustainable industries.
Major carbon exporters with relatively high production costs such as Canada the United States and Russia will see domestic fossil fuel industries collapse. Researchers warn that losses will only be exacerbated if incumbent governments continue to neglect renewable energy in favor of carbon-intensive economies.
The study repeatedly ran simulations to gauge the outcomes of numerous combinations of global economic and environmental change. It’s the first time the evolution of low-carbon technologies has been mapped from historical data and incorporated into an “integrated assessment modeling.”
“Until now, observers mostly paid attention to the likely effectiveness of climate policies, but not to the ongoing and effectively irreversible technological transition,” said Dr. Jean-Francois Mercure, study lead author from Radboud University and Cambridge University’s Centre for Environment, Energy and Natural Resource Governance (C-EENRG).
Prof. Jorge Viñuales, study co-author from Cambridge University and founder of C-EENRG, said our analysis suggests that, “contrary to investor expectations, the stranding of fossil fuels assets may happen even without new climate policies. This suggests a carbon bubble is forming and it is likely to burst.”
“Individual nations cannot avoid the situation by ignoring the Paris Agreement or burying their heads in coal and tar sands,” he said. “For too long, global climate policy has been seen as a prisoner’s dilemma game, where some nations can do nothing and get a ‘free ride’ on the efforts of others. Our results show this is no longer the case.”
One of the factors that may contribute to the tumult created by fossil fuel asset stranding is what’s known as a “sell-out” by OPEC (Organization of Petroleum Exporting Countries) nations in the Middle East.
“If OPEC nations maintain production levels as prices drop, they will crowd out the market,” said Pollitt. “OPEC nations will be the only ones able to produce fossil fuels at the low costs required, and exporters such as the US and Canada will be unable to compete.”
Viñuales observes that China is poised to gain most from fossil fuel stranding. “China is already a world leader in renewable energy technologies, and needs to deploy them domestically to tackle dangerous levels of pollution. Additionally, stranding would take a higher toll on some of its main geopolitical competitors. China has a strong incentive to push for climate policies.”
The study authors suggest that economic damage from adherence to fossil fuels may lead to political upheaval of the kind we are perhaps already seeing. “Mass unemployment from carbon-based industries could feed public disenchantment and populist politics,” said Viñuales.
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