Canadians’ $100 billion oil and gas problem

This story was initially revealed by Canada’s National Observer and is reproduced right here as a part of the Climate Desk collaboration.

Canadians stand to lose over $100 billion within the vitality transition as buyers world wide proceed to pour cash into fossil gas property that can finally develop into nugatory, a current worldwide examine finds.

Many of the recognized losses will come by way of folks’s pension funds and investments. People with their retirement financial savings tied up in funds just like the Canada Pension Plan, Ontario Teachers’ Pension Plan, or the Alberta Investment Management Corporation are vulnerable to seeing their financial savings threatened if an vitality transition shouldn’t be nicely managed given how deeply invested in fossil fuels many pension plans are.

To keep away from the extra severe impacts of local weather change, the world should quickly transfer away from oil, coal and gas. As that transition occurs, fossil gas property — just like the gear used to extract oil and gas, to not point out the oil and gas itself — will lose their worth. The examine, revealed within the journal Nature Climate Change, sought to know who will take the monetary hit as oil and gas manufacturing worldwide turns into unprofitable.

By tracing greater than 40,000 of those property again to their final homeowners, the authors discovered buyers threat dropping as a lot as $1.76 trillion globally. The examine doesn’t predict a crash however moderately compares two situations — what buyers at present count on from their investments and what it will take to carry onto the Paris Agreement’s aim of stopping the planet from warming greater than 2 levels Celsius — to determine the amount of money vulnerable to by no means materializing. It solely thought of assets utilized in oil and gas manufacturing, that means that quantity might develop if issues like pipelines and refineries have been included.

People dwelling in world monetary powers just like the United States and the United Kingdom have probably the most cash in danger from transition — an publicity of roughly $350 billion and simply over $125 billion, respectively. The British Virgin Islands and Hong Kong got here third and fourth, with Canada rounding out the highest 5.

More than half the fossil gas property examined by the examine — price roughly $950 billion — are owned by people by way of autos like pension funds, the authors discovered. The majority of those property will not be positioned in wealthy nations like France, Germany, Japan and Australia. However, most of their homeowners are, the examine finds, that means there may be “a doubtlessly perverse incentive within the monetary sector of those rich nations” to gradual local weather motion.

In different phrases, financiers in wealthy nations are investing in fossil fuels to earn a living within the quick time period, however the more money goes into these investments, the extra these folks stand to lose in a while because the world stops utilizing oil and gas.

“On the one hand, they profit from these earnings which might be flowing and have an curiosity in preserving them alive,” stated the examine’s lead creator, Gregor Semieniuk, an assistant analysis professor on the University of Massachusetts, Amherst, in an interview with Canada’s National Observer. At the identical time, he added, buyers are risking huge losses as a result of their fossil gas investments might rapidly develop into price so much much less if the world transitions to wash vitality sources like photo voltaic and wind on the pace essential to maintain world warming beneath 2 levels C.

Canada — one of many world’s prime fossil gas producers — has oilfields and manufacturing gear price greater than $145 billion. But as a result of a lot of the nation’s oil business is foreign-owned, a few of that threat belongs to buyers outdoors the nation. When you hint the possession of oilfields and manufacturing gear — each in Canada and past — again to Canadians, the examine discovered, the cash buyers stand to lose is definitely round $100 billion.

“Canada is definitely one of many nations that comes out proudly owning much less of the monetary property than the bodily property,” Semieniuk stated. Still, Canadians shouldn’t take that as nice information as a result of the nation is among the many hardest hit by an vitality transition. “Canada, with its tar sands, is just about on the dropping finish,” he stated.

No matter what, phasing out the oil and gas business, which should occur to restrict world warming, will contain some monetary ache. In Canada, banks and different monetary companies have pumped over $900 billion into the coal, oil and gas industries because the Paris Agreement was signed. If the nation acts rapidly to handle local weather change, they’re unlikely to see these investments repay as anticipated.

However, there may be an excellent larger worth to pay for persevering with to put money into fossil fuels. A report revealed final yr by the Canadian Institute for Climate Choices estimated the harm to infrastructure like roads, buildings and energy strains attributable to local weather change will value roughly $30 billion a yr.

Advocacy group Shift: Action for Pension Wealth and Planet Health govt director Adam Scott stated the vitality transition received’t be a straight line.

“It will likely be very sudden and sudden,” he stated. An oil and gas firm’s worth is “unlikely to pattern down over the course of 10 years. It’s extra prone to fall off a cliff when the market realizes what’s happening.”

Pension funds particularly have to get higher at understanding their threat publicity, Scott stated. To date, their focus has been on the bodily threat to their investments — fires, floods, and different local weather impacts that would threaten profitability. Pension funds stay “largely blind” to the dangers posed by an vitality transition that would see their investments lose important quantities of cash, he stated.

A current report from Shift discovered deep entanglements between executives who run pension funds and the fossil gas sector. The examine discovered seven of Canada’s prime 10 pension funds have at the very least one director who additionally serves on the board of administrators of a coal, oil, or gas firm, complicating efforts to align long-term investments with a climate-safe future.

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