Fresh Ideas: Investment in moneymakers isn’t an investment in future

We all remember the painful collapse of the U.S. housing bubble in 2007. Here in Nevada, our economy still is slowly recovering. An economic bubble inflates when too much money is chasing too few assets — as in the Dutch Tulip Mania of 1637, when newly wealthy Dutch merchants bid the price of rare variegated tulip bulbs to astronomical heights.

Another way to inflate a bubble is when the price of an asset is based on an unrealistic view of the future — as in the carbon bubble that some say is building right now.

In the 2010 climate-change conference in Cancun, Mexico, governments agreed that greenhouse-gas emissions need to be reduced so global temperature increases are limited to below 2 degrees Celsius. This benchmark was chosen because it was recognized from the scientific evidence that the risks of very severe impacts, such as large and irreversible rises in global sea levels, reach unacceptable levels at higher temperatures.

In “Unburnable Carbon 2013: Wasted Resources and Stranded Assets” by the Carbon Tracker Initiative in collaboration with the Grantham Research Institute at the London School of Economics, it is calculated that to hold global temperatures to this level, the worldwide carbon budget is 900 billion tons of carbon dioxide. This is the amount of carbon that can be released into the atmosphere between now and 2050 without raising temperatures above 2 degrees.

Right now, the carbon embedded in fossil-fuel companies’ and national governments’ reserves of coal, natural gas and petroleum, if eventually burned, would emit around 2,860 billion tons of carbon dioxide.

This means that to hold global warming under 2 degrees, we can burn no more than 31 percent of the fossil fuels in the world’s current reserves.

This might explain the climate-change denial fostered and bankrolled by some fossil-fuel companies. It makes perfect sense from the point of view of a fossil-fuel company to put off carbon regulation for as long as possible by fostering political disagreement about the danger — indeed, about the very reality — of climate change.

It makes me wonder what to do as an investor. Fossil-fuel stocks are doing pretty well right now, but do I want to invest a part of my retirement savings in companies that, to keep their value, must act in ways that make a livable world for my children and grandchildren less and less likely? And what about the more immediate future, if the carbon bubble collapses when I’m well into retirement?

I’m going to review my investments to determine what my carbon exposure is, then talk to my advisers about disinvesting from fossil-fuel stocks.

The website 350.org is leading a movement among college students to ask their schools to disinvest from fossil-fuel companies. So far, no surprise: they’ve met with resistance from their colleges’ administrators. But if we are in the middle of an carbon bubble, disinvestment will be to the schools’ advantage because it will protect their funds from the risk of a carbon bubble collapse. So the students are not only fighting climate change, they’re urging their schools to be prudent with their funds. Pretty farsighted students.

Anne Macquarie blogs about clean energy and climate change at nevadanscleanenergy.org