The Carbon Bubble... Financial Crisis or Creative Destruction?

Hidden among the tragic stories from Boston a week ago was a story that should probably have been on the front page. This story really grabbed my attention and has fundamental implications for the future of the planet and the structure and direction of the global economy. In a recent and fascinating piece of research, the group Carbon Tracker released a report highlight the implications of a global carbon emissions agreement, that minimizes the chance of a 2 degrees warming and essentially keeps fossil fuel reserves in the ground (as opposed to going up the pipe). 

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The idea of a 'carbon bubble' is the result of over valuing and investing in the exploration and exploitation of fossil fuel reserves (ie. coal, oil and gas). According to the report in 2011, the world has already used over a third of its 50-year carbon budget of 886 GtCO2. The report starkly calculates that the fossil fuel reserves owned by private industry and government equates to 2,860bn tonnes of carbon dioxide - well and truly over the safe amount of carbon that can be burned. Just 31% could be burned for an 80% chance of keeping below a 2C temperature rise. If we want to push the odds - for a 50% chance of 2C or less - just 38% could be burned. The message is here that 2/3 of fossil fuel reserves need to stay in the ground.

Up to $6tr of oil and gas assets could be left stranded over the next decade, throwing investments into disarray and potentially unleashing a new financial crisis - should international climate agreements hold firm. Fossil fuel companies are betting on the markets continuing to push for extraction and the failure of an international agreement to curb carbon pollution. We can see this by the investment figures... far from reducing efforts to develop fossil fuels, the top 200 companies spent $674bn in 2012 to find and exploit even more new resources, a sum equivalent to 1% of global GDP. Ironically the 2006 Stern review on the economics of climate change identified that 1% of GDP would fund the transition to a clean, green, renewable economy. It seems that despite the rhetoric - we are heading in the opposite direction.

Media reports from outlets such as the Guardian and BusinessGreen highlight the warning is supported by organisations including HSBC, Citi, Standard and Poor's and the International Energy Agency recognising that a collapse in the value of oil, gas and coal assets as nations tackle global warming is a major risk to the international economy. While the markets at present are living in a fantasy world, hedging bets on a continuation of infinite fossil fuel development and hence inflating the bubble, the likely future is one that will see massive loss of value for fossil fuel assets if a global agreement is reached in 2015. Investors are starting to see this as a risky investment choice... not only in terms of a loss of value as reserves will be locked up in the ground with an excessively overcaptialised industry; but also from the perspective of using said reserves will cook the planet and cause enormous impact on human civilization and the ecosystems that we depend on.

Investors need to act now and take the risk seriously and incorporate climate change and carbon risk into their investment strategies. This potential crisis could be avoided if renewable and cleaner alternatives are ramped up economy wide and to a scale equivalent to the capitalisation of the fossil fuel industry. This requires an enormous change and about face in the behavior of the markets, of investors, of governments and most importantly the public. While the threat of a new financial crisis is ominous... it is one that could be avoided since we have prior knowledge and recognition of the true costs. The choices are stark.... address climate change and bring in a financial crisis, or take the difficult step of investing in innovation across a low carbon economy... not in 50 years, not in 20 years... but now.

The UK National Ecosystem Assessment

Well...its arrived.

After a lot of research and input, the UK National Ecosystem Assessment (a mini version of the MEA) has delivered its initial assessment of the value of UK ecosystems. This is quite a big deal, and represents the first scientific assessment of the 'value of nature' and the services it provides to society. I, like many others, tend to be sceptical about placed £ or $ on the value of nature. For me, the answer is easy - it is infinite. Without healthily natural systems and a function ecology, we are dead and there is no society. Easy. Or, at a different scale, if I'm asked to value my local beach where I grew up in Australia, where I regularly walked, surfed, swam and pondered, I would be hard pressed to quantify this in terms of monetary value. It means far more than that, it is a part of my heritage, culture and well being. The salt is in my blood.

However, that said, there is immense value in estimating ecosystem services and benefits. The overall finding rings very true:

"The natural world, its biodiversity and its constituent ecosystems are critically important to our well-being and economic prosperity, but are consistently undervalued in conventional economic analyses and decision making."

Despite my scepticism and inherent discomfort at valuing life, decisions are made that do not take into account the benefits of functioning ecosystems and the broader benefits they provide to society. In this world of cost and benefit, it is increasingly useful to balance the ledger books, and to make rational economic arguments that support conservation. To the reports credit, valuation of benefits is not purely in monetary terms - it recognises that values are as much social as economic. How these non monetary values stack up against economic arguments is yet to be seen, and will be interesting in the future in terms of pragmatic decision making and EIA.

How does do coasts and marine perform? The report identifies that these broad habitats provide a range of important functions, from provisioning services that supply resources to society, regulating services that underpin functioning habitats, and culturing services that provide a sense of place and wonder. Many of these services are in decline in coastal and marine settings, due to heavy use and exploitation, increased development, eutrophication and the impacts of climate change. While the report brings to light the benefits and values of coastal and marine services, it is clear the evidence base is narrow. Critically, we have to ask the 'so what' question - if ecosystem services are valuable and in decline in some areas, what happens next? Will they steer development or resource use decisions?

Land, water, sea...sustainability.

The Sydney Morning Herald recently posted a great article for thought on sustainability and water resources. While it pertained to terrestrial environments and fresh water (or more to the point a lack of it) the article points out the difficulties of finding 'balance' between social, economic and natural systems. The use of the word 'sustainability' has permeated the discourse on environment and resources for decades, and has strived to achieve balance between competing concerns. As stated in the article, sustainability is a dangerous word, but one to which politicians are irresistibly attracted. It has a wonderful ring to it and drips with virtue. Can you think of anyone who would admit to supporting anything that wasn't sustainable? Yet when it comes to the crunch of actually delivering on sustainability, its meaning can evaporate as decision makers struggle in attempts to balance competing views, conserve the environment, or both. Usually it is easier to stick your head in the sand, make a few token gestures and hope the whole thing will go away.

While the article explains the complex and passionate debates surrounding water in Australia, the lesson is the same for the marine environment. How far can we push its limits? Many resources such as fisheries are degraded as are coastal ecosystems - reducing the capacity for those systems to sustain human economies. While this may seem drastic, the evidence is clear - take for example the ruinous state of the Firth of Clyde (in Scotland)  a once productive ecosystem that supported multiple whitefish fisheries - now degraded system that supports limited dredge and trawl fisheries for prawns and scallops.

The sustainability of the ecosystem is, in the end, is non-negotiable. It's not a question of being reasonable, of politicians splitting it down the middle and everyone going away grumpily satisfied. It's not even a question of imagining we can put the interests of communities ahead of the ecosystem. Communities are the ecosystem - they link and flow to each other and their fates are bound together. For radical and necessary measures to work, we must take communities with us, but the choice is not a three way race between ecology, society and economy. It lies in the recognition that natural systems have limits, that those systems are important to our wellbeing, and that we must look for long term and bold solutions that restore the ability of those systems to support biodiversity and coastal communities. While we can wax and wane about sustainability as much as we like, the important thing is doing something tangible about it.

– LEGISLATORS AGREE GLOBAL MARINE RECOVERY STRAGEGY TO ADDRESS COLLAPSE OF WORLD FISHERIES

London, Tuesday 8th June, On World Oceans Day 40 senior Members of Parliament from 15 key fishing nations and regions, including Japan, US, Europe, Canada, Indonesia, Mexico and Brazil agreed a Global Marine Recovery Strategy on world fisheries intended to reverse the decline of global fisheries. The legislators were advised by the world’s leading scientific and policy experts who presented a bleak outlook for fishery stocks if immediate political action was not taken.

The meeting was organised by the Global Legislators Organisation for a Balanced Environment, (GLOBE) to challenge the current international political failure to address the rapid decline of global fisheries stocks. The legislators each pledged to advance the Strategy through their respective parliaments and participants included the former UK Biodiversity Minister, Barry Gardiner MP, the Chair of the European Parliament Fisheries Committee, Patrao Neves Maria MEP, the Vice President of the Brazilian Senate, Senadora Serys Slhessarenko, the Deputy Speaker of the Indonesian Upper House, Representative Laode Ida, the Chairman of the South African National Assembly Committee on Fisheries, Mlungisi Johnson. The Chair of the United States Senate Commerce Subcommittee on Oceans, Atmosphere, Fisheries, and Coast Guard, Senator Maria Cantwell and Committee Member Senator Daniel Inouye both submitted addresses to the meeting and offered their support for the Strategy.

The GLOBE Fisheries Commission Chairman and former UK Biodiversity Minister, Barry Gardiner MP, said, “Due to the failure of existing international political processes to address the collapse of global fisheries, GLOBE, has convened legislators from the world’s major fishing nations and those countries most affected by current policies.

“The science is clear we must act now and we must act decisively and today as parliamentarians from fishing nations we have agreed a package of far reaching measures. We begin today to advance this strategy through our parliaments and into our governments. Ultimately, this Strategy offers a sustainable future for those that depend on fisheries for their livelihoods, be it for food or employment. If we do not act we will see the collapse of fish stocks over a very short period of time.”

‘Since the industrialisation of fishing in 1950s, global fish stocks have been dramatically decreasing. Thirty percent of fish stocks have already collapsed, with other high profile species, such as the Atlantic Bluefin Tuna rapidly approaching extinction in whole areas of our oceans. As the oceans are a global common good, it is essential that there is a coordinated response by the world’s key fishing nations to restore the marine environment to a healthy and productive state.”

The Strategy set out the following Priority Actions:

Parliamentary Legislation
• Ratify and adopt robust implementing legislation for all existing UN and FAO international fishery agreements.
• Redirect inappropriate fishing subsidies into programmes that improve fisheries management.
• Implement flexible rights-based management schemes for both coastal and high seas fisheries.
• Prevent fisheries authorities from setting catch limits above scientific recommendations.
• Involve the fishing industry in data collection and co-management of fisheries.
• Mandate environmental impact and stock assessments for all commercially fished species.
• Integrate fisheries and environment policy within government.
• Provide economic incentives for industry initiatives to source legal and sustainable fish.
• Introduce legislation to ban the import and domestic trade of illegally-caught fish (e.g. US Lacey Act).
• Implement a ‘Cap and Restore’ approach for all severely depleted fisheries.
• Adopt modern MPA network targets to propel domestic implementation of MPAs that link in to national and regional networks, alongside comprehensive fisheries management outside of protected areas.

Regional Cooperation

RFMO Members
• Review and reform of RFMO conventions to promote sustainable, ecosystem-based management of marine biotic resources.
• Construct new RFMOs or expand existing RFMOs to manage species and areas currently unmanaged.
• Implement UNFSA requirements for a precautionary, ecosystem-based approach.
• Agree new RFMO rules that prevent decision-making bodies from setting catch limits above scientific recommendations.
• Incentivise RFMO membership by linking it to capacity-building assistance, and agree economic sanctions against non-compliant states.
• Establish RFMO mandates for all flag states to ensure their vessels carry tamper proof monitoring and surveillance equipment.


Coastal and Port States
• Increase and harmonise sanctions against illegal fishing and transhipment vessels across coastal and port states in key regions.
• Establish regional agreements for sharing data on fishing activities and resources for monitoring and enforcement, especially in developing country coastal and port states.
International Actions
New Agreements
• Mandate the UN to review and monitor RFMO performance based on existing benchmark standards for RFMOs in the UNFSA.
• Support the development of a multilateral and enforceable agreement on fishing subsidy reform within the World Trade Organisation.
• Require all fishing and reefer vessels to carry unique identification, such as IMO numbers.
• Hold non-compliant states accountable using the International Tribunal on the Law of the Sea.
• Adopt modern MPA network targets to propel the creation of marine reserves and networks globally.
• Investigate a new Global Framework Agreement for Marine Spatial Planning in areas beyond national jurisdiction.
New Multilateral Institutions
• Continue and increase support for the International Monitoring Control and Surveillance Network, expanding its mandate to conduct and coordinate global high seas fisheries intelligence-gathering.