This action might not be possible to undo. Are you sure you want to continue?
Douglas A. Grandt
PO Box 6603
Lincoln, NE 68506
Office of the Chairman
Mr. Rex Tillerson & Staff
5959 Las Colinas Blvd.
Irving, TX 75039
Re: Autumn Arrived -- The Tide is Turning Toward Transition
Dear Mr. Tillerson & Staff of the Chairman,
Yesterday, I promised to send several documents. They are
enclosed herewith, and demonstrate one more time, that the
tide of public and private sentiment is turning to the
cessation of burning carbon-based fuels.
David Suzuki is putting his reputation on the line with
a trail of his Climate & Energy Manifesto -- the same
ideas I’ve been writing you since early Spring, 2012.
Climatologist James Hansen has written yet another
paper promoting a revenue neutral carbon fee.
States and provinces are continuing to move toward
synchronized programs that will eventually price oil,
coal and gas into economic extinction.
Large institutional investors and superannuitants are
banding together to demand transparency from you.
All while individuals across the nation continue to
demonstrate widespread resistance to expansion of
the infrastructure and processes that perpetrate the
deadly extraction and transport of fossil fuels.
I implore you to read and seriously weigh what the
enclosures convey: You and your colleagues will be
going the way of the dinosaurs if you do not reinvent
yourselves as renewable energy companies.
Reinvent -- Replace Refineries with Renewable
Encl.: David Suzuki - “Suzuki’s Manifesto”
James Hansen - “David vs Goliath”
Pacific Coast Action Plan on Climate & Energy press release and Agreement
Ceres’ press release and promotional graphic with investor logo identification
Ceres’ letter to fossil fuel executives, addressee list & investor signatory list
Responsible-Investors - “Is the Tide Turning on Big Carbon?”
InsideClimate News - “Wall Street Demands Answers from Fossil Fuel ...”
Guardian - “Fighting the Fuel Giants for a Fully Renewable Future”
Fortune - “Investors Sound the Alarm on Climate Change”
CNBC - “This Could be Exxon Mobil’s Biggest Threat”
I will continue to remind you about
your speech at the Boy Scouts of
America Annual Meeting in May
Imagine yourself the captain of a
ship of state leading a change of
course toward a world of life-
preserving carbon-free energy.
I’m David Suzuki. I stand here today as an elder, beyond the temptations of
money, fame or power. I have no hidden agenda but to speak the truth.
Human beings and the natural world are often too beautiful for words. I’ve
spent much of my career ﬁlming the wonders of nature and our place in it –
many times words would fail me. As I near the end of my life, I am amazed at
how much power, technology, wealth and consumption humanity has acquired,
and that has transformed our lives while at the same time undermining the very
life support systems on which our existence and well-being depend – air, water,
soil and food, photosynthetic activity and biodiversity.
Now, my grandchildren are the joy of my life, but I know how uncertain their
future is and all the baubles of our consumer society cannot compensate for
the rich wonders and generosity of nature. But you don’t have to be moved by
the beauty of the world to understand that we depend on it utterly for our very
existence. My postwar generation and the boomers who followed lived like
kings and queens as we partied as if there was no tomorrow, never worrying
about the kind of world we were leaving for our children. Well, the party’s over.
“Human beings and the natural world are on a collision course… If not checked,
many of our current practices put at serious risk the future we wish for human
society…No more than one or a few decades remain before the chance to avert
the threats we now confront will be lost and the prospects for humanity
immeasurably diminished… A great change in our stewardship of the earth and
the life on it is required if vast human misery is to be avoided and our global
home on this planet is not to be irretrievably mutilated.”
Those words are taken from the World Scientists’ Warning to Humanity, from
November 1992, over two decades ago. It was signed by over 1,700 senior
scientists from 71 countries and included more than half of all Nobel
Since the World Scientists’ Warning, scientiﬁc study after scientiﬁc study has
documented the perilous state of the atmosphere, oceans, forests, vanishing
species, toxic pollution and the unanticipated consequences of powerful new
The Trial of Suzuki! Suzuki’s Manifesto! Page 1 of 3
Now we stand on the edge of a precipice that is of our own making. In less than
100 years, we have managed to lose sight of our absolute dependence on
nature, and our responsibility not to foul our own home. We congratulate
ourselves for growth, expansion, technological advances, and proﬁts, and we
live with the illusion that our inventiveness enables us to keep the economy
growing without limit.
Canada has been near the head of the line when it comes to growth and proﬁts
in the world. And the tyranny of the belief that the economy is what matters
most to the country has transformed us to a point where we can hardly
recognize ourselves. George Monbiot writes “Canada: a “liberal, cultured,
decent country” has been “transformed into a thuggish petro-state.” I believe
this is who we are. A country that in spite of everything science tells us, what
the changing weather tells us, is determined to squeeze every bit of oil out of
the ground to grab the last of the proﬁts to feed an addiction that we know is
destroying a future from coming generations.
Governments and corporations are not just failing us, they are the driving
forces that are taking us to the brink, wilfully ignoring the consequences and
thereby committing what can only be called an intergenerational crime. The
consequences of their actions — and inaction — will reverberate for
generations. Wilful blindness is an indictable ofence as is criminal negligence,
but intergenerational crime is so recent a concept that we have yet to develop
the legal mechanisms to act. Our so-called leaders must be held accountable.
This accountability must extend to every citizen of Canada. We have failed our
children and our planet because of our fear of change and our fear of the
I accuse corporations, including the automobile, energy, pharmaceutical,
chemicals, and agricultural sectors; of putting proﬁt and growth before all else
including the survival and health of society. That their corporate lobbying is
setting our country’s agenda is shameful.
I accuse Canadian politicians of intergenerational crimes. Their actions will
afect our grandchildren, and their grandchildren.
I accuse Canadian corporations and government of immoral activity with
devastating consequences for the poorest, most vulnerable nations on the
I accuse Canada’s politicians and its citizens of wilful blindness, of failing to be
informed about critical issues that they have the power to inﬂuence and of
failing to take action when they are aware of avoidable ecological crises.
The Trial of Suzuki! Suzuki’s Manifesto! Page 2 of 3
If my country refuses to exonerate me, then it stands guilty of failing to defend
its vaunted claim of freedom of speech. If my words are judged treasonous,
then so be it.
With my carbon manifesto, I aim to stop these crimes:
1. Fossil fuels as our primary energy source are over. Within a generation they
must stay in the ground. That means exploration and subsidies to the fossil
fuel industry end now.
2. Save the earth’s largest carbon sinks: Canada’s Boreal forest and our oceans
must be protected.
3. Seventy per cent of our energy must be renewable energy within one
4. A carbon tax of $150 per tonne starts now.
5. Canadian climate scientists must be able to share their ﬁndings uncensored
and unimpeded by political and corporate interests.
I hereby ofer a manifesto pledge:
Human beings have become so powerful that we are altering the biological,
chemical and physical properties of the planet on a geological scale. We must
look to the future, and science rather than politics or economics must be our
I know our dependence on fossil fuels must end.
I know it will take massive change for us as a species to survive let alone thrive
in the converging global crisis around climate, food, water, fuel and the
I pledge to stop the epidemic of blame around the climate crisis and recognize
my own responsibility.
The way I live my life is part of the problem.
I believe we need a new vision for our future as Canadians and as humans.
I pledge that I am ready to implement change. I want to be part of the solution
not part of the problem.
I stand with the Carbon Manifesto. This is our way forward.
The Trial of Suzuki! Suzuki’s Manifesto! Page 3 of 3
David vs Goliath
21 October 2013
I could not help thinking of David vs Goliath yesterday as I was working on a letter to Jose
Manuel Barroso, President of the European Commission. The subject was that discussed in an
earlier note (Europe Standing Tall Against a Rogue State): will the tax that Europe applies to
unconventional fossil fuels in its Fuel Quality Directive (FQD) be the proper tax to account for
all the emissions during the mining and processing of the fuel or will they pretend that it is the
same as conventional oil?
It matters -- a lot. If total emissions are counted, oil from tar sands or tar shale will be less
competitive in the market. If a rising fee on carbon is achieved, these dirtiest of fuels will be the
first to be eliminated and replaced by clean energy and energy efficiency. Tar sands production
today is moderate, but there are plans to quintuple the rate of extraction over the next decade.
Tar sands operations today are ugly enough, but if that expansion happens and infrastructure is
put in place to carry the products away, there surely will be a monstrous rape of the land. And
from the climate standpoint, we cannot accept the massive carbon amounts in unconventional
fossil fuels without guaranteeing climate disasters. Conventional oil and gas should be the
transition fuel to a clean energy future, and they could be that, if we put a rising fee on carbon.
"David" in this case was the Friends of Earth Europe contingent, a small determined middle-aged
lady supported by a few young people. Outcome of our European trip to five capitals seemed too
good to be true, and maybe it was. The European Commissioner for Climate Action, Connie
Hedegaard, indicated a determination to have honest accounting of emissions from all fuels. The
officials of most key nations seemed to be very understanding and supportive -- so it seemed that
the vote should go the right way. But wait -- will there be a vote?
"Goliath", the fossil fuel industry, does not have much to fear in the well-oiled coal-fired U.S.
Congress. Maybe it's not much different in Europe. Fig. 1 shows some of the big-boy lobbyists,
just those of a single U.S. law firm celebrating the first anniversary of its Brussels office.
Goliath, for all his size, likes to work behind the scenes - but you can see his work in the daytime
too - just turn on your television to see all the messages about safe dependable tar sands and coal.
Perhaps the United States, as well as Canada, will side with unconventional fossil fuel interests.
It would not be the first time that spoken concerns about climate change turned out to be
greenwash. But this need not prevent Europe from standing tall.
This is not meant to discourage you. "David" can win this eventually, but we need many Davids.
David's chief weapon needs to be exposing the truth. We must expose what is happening.
Although the present Canadian administration seems to be a handmaiden of the fossil fuel
industry, it is not certain that the same is true for the Obama administration. The fossil fuel
industry will lobby the Obama administration to pressure Europe to accept dirty oil as clean, and
it will lobby Obama to approve the Keystone pipeline. The basis for optimism is the fact that the
matter has been exposed. There is reason to hope that John Kerry will advise Obama to not
approve the pipeline. Surely they understand their legacies, if the pipeline is approved.
A Houston-based law firm celebrating the first anniversary of its Brussels office (NY Times, 19 Oct.).
However, we must recognize that all individual fossil fuel matters -- tar sands pipeline, coal
trains and port facilities for export, hydro-fracking, mountaintop removal, etc. -- all of these are
overwhelmed by the need for a simple, rising, across-the-board carbon fee collected at the
domestic mine or port-of-entry. Without a carbon fee, any success in stopping a fossil fuel
project will be short-lived. With a rising carbon fee, we will eventually win on all of these
fronts, with the highest carbon sources falling into disuse first.
For that reason, Citizens Climate Lobby deserves the highest priority -- and I am very distraught
that I forgot about my scheduled time to be on their monthly call last evening. I apologize to
anyone who was expecting to ask me questions, and I hope that we have another opportunity.
Everyone who wishes to preserve our planet and its life should consider joining and supporting
CitizensClimateLobby.org. Their advocacy of a simple rising carbon fee, with 100% distribution
of funds to the public -- nothing to make the government bigger -- is just what is needed to
incentivize a transition to clean energy. Their respectful but thoughtful demeanor is perfect.
I would like to write some more about why it is so essential to stick assiduously to the Citizens
Climate Lobby approach, and also write something about other "Davids" (some good news about
Our Children's Trust), but I will save that for later. I just want to get this off this evening, to
apologize to Citizens Climate Lobby for the snafu last evening.
(attached is the letter drafted last evening, with the aim of soliciting scientists to co-sign -- it will
be sent to Jose Manuel Barroso, President, European Commission, B-1040 Brussels.
Opinions of European scientists would seem particularly relevant.)
Scientist letter on the Fuel Quality Directive and tar sands
We are scientists involved in many different areas of climate science. We write to you to
recommend that EU policies recognize and account for higher emissions from production of
unconventional fossil fuels. Such policies will encourage investments in low-carbon fuels and
technologies consistent with the world’s limited carbon budget and will encourage companies
and states to leave the most carbon-intensive fossil fuels in the ground.
We live in an era during which it has become clear that we cannot burn all of the fossil fuels
without causing dangerous climate change, as the latest Intergovernmental Panel on Climate
Change report has made clear. Instead, we must leave a substantial amount of the fossil fuels in
the ground and move to cleaner sources of energy. Policy-makers now have a paramount
responsibility to ensure that happens. Your decisions today will affect the kind of planet future
generations will inherit.
We understand the Commission is currently considering a new proposal on the implementation
of the 2009 EU Fuel Quality Directive (FQD). This law set an emissions reduction target and
gave the European Commission a legislative mandate to develop a methodology to account for
greenhouse gas (GHG) emissions from the production of fossil fuels.
The Commission’s 2011 proposal to implement the requirements for fossil fuels used a
scientifically sound approach to label the significant variations in the GHG intensity of different
fossil fuel “feedstocks”, including higher values for fuels such as coal-to-liquid, tar sands, oil
shale and gas-to-liquid. Since the FQD requires companies to report on the GHG emissions of
the fuels that they place on the European market using these different emission values, the FQD
will for the first time hold the oil industry accountable for the carbon emitted during production
of the fuels they sell on the European market. This accountability will send a much needed signal
to oil suppliers to invest in cleaner fuels. We therefore urge you to continue with the
implementation based on this scientific approach.
We are at a time in history when it is still possible to minimize the effects of climate change by
making fossil fuels pay their full costs to society and thus accelerate a shift to cleaner energy.
The consequences of your decision on the FQD as one part of Europe’s climate actions will
reach far beyond Europe’s borders. We urge you to uphold the scientifically sound proposal in
order to ensure Europe’s climate legislation is fully implemented and that Europe maintains its
leadership on climate action.
For Immediate Release
October 28, 2013
Offices of the Governors of California, Oregon
Office of the Premier of British Columbia
PACIFIC COAST ACTION PLAN ON CLIMATE AND ENERGY
BRITISH COLUMBIA, CALIFORNIA, OREGON & WASHINGTON
JOIN FORCES TO COMBAT CLIMATE CHANGE
West Coast Leaders Commit to Accounting for the Costs of Carbon, Clean Fuel
Standards, Other Clean Energy Priorities for Region of 53 Million People
SAN FRANCISCO – The leaders of British Columbia, California, Oregon and Washington signed
the Pacific Coast Action Plan on Climate and Energy today, committing their governments,
and a region that represents the world’s
fifth largest economy, to a comprehensive and far-
reaching strategic alignment to combat climate change and promote clean energy.
California Governor Edmund G. Brown Jr., Oregon Governor John Kitzhaber, Washington
Governor Jay Inslee were joined at Cisco SF by British Columbia’s Premier Christy Clark,
who participated via TelePresence from Victoria. BC Environment Minister Honourable
Mary Polak attended in person.
Through the Action Plan, the leaders agreed that all four jurisdictions will account for the
costs of carbon pollution and that, where appropriate and feasible, link programs to create
consistency and predictability across the region of 53 million people. The leaders also
committed to adopting and maintaining low carbon fuel standards in each jurisdiction. In a
joint action plan, the leaders committed to “meaningful coordination and linkage between
states and provinces across North America.”
“This Action Plan represents the best of what Pacific Coast governments are already doing,
and calls on each of us to do more—together—to create jobs by leading in the clean energy
economy, and to meet our moral obligation to future generations,” said Governor Inslee.
“Each of the governments here is already taking bold steps on climate change; by joining
forces, we will accomplish even more," Inslee said.
Flanked by supportive business and labor leaders, the governors and Premier redoubled
their commitment to growing the region’s clean energy economy. The region covered by the
Action Plan has a combined GDP of $2.8 trillion—effectively the world’s fifth largest economy.
“Oregon supports the Action Plan because we are already seeing how our commitment to
clean energy is changing the face and fortune of our state, accounting for $5 billion in
economic activity and 58,000 jobs,” said Governor Kitzhaber. “The debate is over. The
scientific community no longer disputes that climate change is happening and human-caused.
But regardless of where you stand on this question, there’s another good reason to act:
transitioning to a clean economy creates jobs,” Kitzhaber said.
Under the Action Plan, California and British Columbia will maintain their existing carbon
pricing programs along with their respective clean fuel standards, while Oregon and
Washington have committed to moving forward on a suite of similar policies. The leaders
further agreed to harmonize their 2050 greenhouse gas emission targets and develop mid-
term targets where needed to set a path toward long-term reductions.
“California isn't waiting for the rest of the world before it takes action on climate change,”
said Governor Brown. “Today, California, Oregon, Washington and British Columbia are all
joining together to reduce greenhouse gases,” Brown said.
The leaders pledged to cooperate with governments and sub-national governments around
the world to press for a global agreement on climate change in 2015.
“Taking action to address climate change in our own capitals is an important first step,” said
Premier Clark. “By supplying cleaner energy and associated technologies to help others
reduce their emissions while growing the economy and creating jobs at home, our generation
has an opportunity to lead on the world stage. This agreement signals we are ready to
innovate and work together to achieve a healthy, strong, and secure future,“ Clark said.
Business leaders hailed the Action Plan as an important milestone and a boost to efforts for
national and international policy change.
“Our company is seeing significant growth on the Pacific Coast, and it is encouraging that the
trend is concurrent with this landmark accord,” said Steve Clem, Vice President of Skanska
USA in Portland, Oregon, one of the ten largest construction companies in the U.S.
“In this time of political grandstanding and gridlock, private enterprises like ours that are
trying to do the right thing are pleased by the recognition here that it really is possible to
grow the economy, create jobs and still do our part as a region to fight climate change,” Clem
Blair Christie, Senior Vice President and Chief Marketing Officer at Cisco, hosted the signing
ceremony with the leaders. Dave Foster, Executive Director of the BlueGreen Alliance, and
Bill Dewey, President of Taylor Shellfish Farms in Shelton, Washington, also spoke at the
The Pacific Coast Collaborative was established to address the unique and shared
circumstances of the Pacific coastal areas and jurisdictions in North America by providing a
framework for co-operative action, a forum for leadership and the sharing of information on
best practices, and a common voice on issues facing coastal and Pacific jurisdictions.
# # #
Pacific Coast Action Plan on Climate And Energy:
British Columbia: Dave Crebo, David.Crebo@gov.bc.ca or (250) 812-5747
California: Jim Evans, Jim.Evans@GOV.CA.GOV or (916) 445-4571
Oregon: Tim Raphael, Tim.firstname.lastname@example.org or (503) 689-6117
Washington: David Postman, David.Postman@gov.wa.gov or (360) 902-4136
Skanska USA Inc.: Jay Weisberger, Jay.Weisberger@skanska.com or 206 550 8883
Cisco: Kristin Carvell, email@example.com or (408) 209-3753
Resource Media: Eric Jaffe, firstname.lastname@example.org or (415) 235-7822
P.ci vi c Co.s:
Ac:i ow Pi.w on
Cii x.:i .wu Ewivcv
Tni Govivwxiw:s ov C.iivovwi., Bvi:isn CoiUxni.,
Ovicow .wu W.sniwc:ow,
Pursuant to the Memorandum to Establish the Pacic Coast Collaborative
of June 2008, as provided for in Article 6;
Arming our shared vision of Pacinc North America as a model of
innovation that sustains our communities and creates jobs and new
economic opportunities for our combined population of 53 million;
Recognizing that the Pacinc Coast is a region bound together by a
common geography, shared infrastructure and a regional economy with
a combined GDP of US $2.8 trillion, which makes it the world’s nnh
Acknowledging the clear and convincing scientinc evidence of
climate change, ocean acidincation and other impacts from increasing
concentrations of carbon dioxide in the atmosphere, which threaten
our people, our economy and our natural resources;
Emphasizing that states and provinces around the world are battling
climate change through technology innovation and actions that
limit greenhouse gas emissions and other air pollution while creating
economic growth, consumer savings and new jobs;
Celebrating that our own governments have reduced greenhouse gas
emissions by adopting regulatory, policy and market-based measures
that shin energy generation to clean and renewable sources, manage
energy use through greater emciency and conservation, and enable and
promote consumer choice for clean vehicles;
Recalling the nndings of the 2012 West Coast Clean Economy report
which projected 1.03 million new jobs could be created in key sectors,
such as energy emciency and advanced transportation, assuming the
right policy environment;
Supporting positive federal action to combat climate change, including
President Obama’s climate action plan and proposed rules to limit
greenhouse gas emissions from power plants;
Joining the growing international convergence on the need to secure
an international agreement to reduce global greenhouse gas emissions,
including discussions at the coming Conference of Parties meetings in
Warsaw (2013), Lima (2014) and Paris (2015); and
Agreeing that meaningful coordination and linkage between states and
provinces across North America and the world on actions to reduce
greenhouse gas emissions can improve the enectiveness of these actions,
increase their overall positive impact and build momentum for broader
international coordination to combat climate change;
NOW THEREFORE HEREBY AGREE AS FOLLOWS:
I. Lead national and international policy on climate change
with actions to:
Direct our relevant agencies and omcials to work together to:
1) Account for the costs of carbon pollution in each jurisdiction.
Oregon will build on existing programs to set a price on carbon
emissions. Washington will set binding limits on carbon
emissions and deploy market mechanisms to meet those
limits. British Columbia and California will maintain their
existing carbon-pricing programs. Where possible, California,
British Columbia, Oregon and Washington will link programs for
consistency and predictability and to expand opportunities to grow
the region’s low-carbon economy.
2) Harmonize 2050 targets for greenhouse gas reductions and
develop mid-term targets needed to support long-term reduction
Climate scientists have identined the scale of greenhouse gas
reductions that must be achieved globally to stabilize the climate.
Where they have not already done so, California, British Columbia,
Oregon and Washington will establish long-term reduction
targets that renect these scientinc nndings. To advance long-term
reductions, Washington already has in place a mid-term 2035 target.
California and Oregon will establish their own mid-term targets.
British Columbia has already legislated 2020 and 2050 targets
and will explore whether setting a mid-term target will aid their
3) Arm the need to inform policy with ndings from climate
Leaders of California, British Columbia, Oregon and Washington
amrm the scientinc consensus on the human causes of climate
change and its very real impacts, most recently documented
by scientists around the world in the Intergovernmental Panel
on Climate Change’s Fih Assessment Report released in
September 2013, as well as other reports such as the Scientic
Consensus on Maintaining Humanity’s life Support Systems in the
21st Century. Governmental actions should be grounded in this
scientinc understanding of climate change.
4) Cooperate with national and sub-national governments around
the world to press for an international agreement on climate
change in 2015.
Te governments of California, British Columbia, Oregon and
Washington will join with other governments to build a coalition
of support for national and international climate action, including
securing an international agreement at the Conference of Parties in
Paris in 2015. Te governments of California, British Columbia,
Oregon and Washington will coordinate the activities they
undertake with other sub-national governments and combine these
enorts where appropriate.
5) Enlist support for research on ocean acidication and take action
to combat it.
Ocean health underpins our coastal shellnsh and nsheries
economies. Te governments of California, British Columbia,
Oregon and Washington will urge the American and Canadian
federal governments to take action on ocean acidincation, including
crucial research, modeling and monitoring to understand its causes
II. Transition the West Coast to clean modes of transportation
and reduce the large share of greenhouse gas emissions from
this sector with actions to:
1) Adopt and maintain low-carbon fuel standards in each
Oregon and Washington will adopt low-carbon fuels standards,
and California and British Columbia will maintain their
Governor of Washington
EnxU×n G. Bvov× Jv.
Governor of California
Jon× A. K:rznznvv
Governor of Oregon
Premier of British Columbia
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existing standards. Over time, the governments of California,
British Columbia, Oregon and Washington will work together to
build an integrated West Coast market for low-carbon fuels that
keeps energy dollars in the region, creates economic development
opportunities for regional fuel production, and ensures
predictability and consistency in the market.
2) Take actions to expand the use of zero-emission vehicles, aiming
for 10 percent of new vehicle purchases by 2016.
Te Pacinc Coast already has the highest penetration of
electric cars in North America. Te governments of California,
British Columbia, Oregon and Washington will work together
towards this ambitious new target by supporting public and
private neet managers to shin their procurement investments
to catalyze toward electric car purchases and by continuing to
invest in necessary infrastructure to enable low-carbon electric
3) Continue deployment of high-speed rail across the region.
Providing high-speed passenger rail service is an important part
of the solution to expand regional clean transportation, improve
quality of life and advance economic growth. Te governments of
California, British Columbia, Oregon and Washington continue to
support the Pacinc Coast Collaborative’s Vision for high speed rail
in the region, and will continue to seek opportunities to invest in
rail infrastructure that moves people quickly, safely and emciently,
and encourages innovation in rail technology manufactured in the
4) Support emerging markets and innovation for alternative fuels in
commercial trucks, buses, rail, ports and marine transportation.
Te Pacinc Coast of North America is emerging as a center of
private sector innovation and investment in cleaner fuels and engine
technologies for heavy-duty trucks and buses, rail, ports and marine
transportation. Te governments of California, British Columbia,
Oregon and Washington will develop targets and action plans to
accelerate public and private investment in low-carbon commercial
neets and support the market transition to biofuels, electricity,
natural gas and other low-carbon fuels in local and export markets.
III. Invest in clean energy and climate-resilient infrastructure
with actions to:
1) Transform the market for energy emciency and lead the way to
Energy emciency is the lowest cost way to reduce greenhouse gas
emissions while creating good local jobs. Te governments of
California, British Columbia, Oregon and Washington will work
to harmonize appliance standards, increase access to anordable
nnancing products, and support policy that ensures that energy
emciency is valued when buildings are bought and sold. Our
enorts intend to build a vibrant, growing regional market for energy
emciency products and services.
2) Support strong federal policy on greenhouse gas emissions from
Te governments of California, British Columbia, Oregon and
Washington will support the U.S. Environmental Protection
Agency’s initiative to regulate greenhouse gas emissions from power
plants and emphasize the importance of allowing state nexibility
to design ambitious reduction programs within this regulation.
Our jurisdictions will also coordinate and provide joint testimony in
federal proceedings on greenhouse gas emissions when appropriate.
3) Make infrastructure climate-smart and investment-ready.
Te West Coast Infrastructure Exchange (WCX) is demonstrating
how to attract private capital for infrastructure projects while
increasing climate resilience through best practices and certincation
standards. To scale up these enorts, the governments of California,
Oregon and Washington will sponsor pilot projects with local
governments, state agencies and the WCX. WCX also works
closely with Partnerships BC, a center of infrastructure nnancing
expertise established by the government of British Columbia that
has helped to secure nnancing for over 40 projects worth more than
4) Streamline permitting of renewable energy infrastructure.
Meeting ambitious carbon-reduction goals will require scaling up
wind, solar and other forms of renewable energy and enectively
bringing clean power to customers in California, Oregon and
Washington. Drawing on emerging models in California and the
Pacinc Northwest, the governments of California, Oregon and
Washington will work with permitting agencies to streamline
approval of renewables projects to increase predictability, encourage
investment and drive innovation.
5) Support integration of the region’s electricity grids.
Connecting the markets for buying and selling wholesale electricity
in our region can increase local utilities’ nexibility and reliability
and provide consumer savings by enabling use of a wide variety of
energy sources across the region. Integrating our region’s electricity
markets also expands energy users’ access to renewable energy
sources, such as solar and wind power.
Tis Action Plan is intended to spur nnding new, smart ways for our
governments, agencies and stan to work together, and with other
governments and non-government partners, as appropriate, to add value,
emciency and enectiveness to existing and future initiatives, and to
reduce overlap and duplication of enort, with the objective of reducing,
not increasing, resource demands to achieve objectives that are shared.
Tis Action Plan shall have no legal enect; impose no legally binding
obligation enforceable in any court of law or other tribunal of any
sort, nor create any funding expectation; nor shall our jurisdictions be
responsible for the actions of third parties or associates.
Original signed by
Jon× A. K:rznznvv
Governor of Oregon
Original signed by
Premier of British Columbia
Original signed by
EnxU×n G. Bvov× Jv.
Governor of California
Original signed by
Governor of Washington
53 million people living in what
would be the world’s fifth-
largest economy will now be
participating in a “far-reaching
strategic alignment to combat
climate change and promote
On Monday afternoon in San
Francisco, the leaders of
California, Oregon, Washington,
and British Columbia signaled
they would not wait for the United States Congress or the Canadian Parliament to act to
seriously address climate change. California Governor Jerry Brown, Oregon Governor John
Kitzhaber, Washington Governor Jay Inslee, and (via teleconference) British Columbia’s Premier
Christy Clark signed the Pacific Coast Action Plan on Climate and Energy.
The agreement is not legally binding and appropriates no money. The plan says it “is intended to
spur finding new, smart ways for our governments, agencies and staff to work together,” by
doing things like adding value and efficiency to climate initiatives through collaboration, while
reducing “overlap and duplication of effort.” So what does it do?
The Action Plan that California, Oregon, Washington, and British Columbia’s leaders all signed
1. Account for the cost of carbon, by linking existing carbon pricing programs and working to
develop them in Oregon and Washington. Oregon agreed to “build on existing programs to set a
price on carbon emissions,” while Washington would “set binding limits on carbon emissions and
deploy market mechanisms to meet those limits.” That sounds like a carbon price and a cap-and-
trade system, respectively. California has a cap-and-trade system which has sold out of all its
allowances in each of the four auctions it’s held. British Columbia has had a carbon tax for five
years, currently at $30/ton (Canadian). If Oregon and Washington’s plans pass and the programs
successfully link, a larger market for the region’s carbon allowances would be a boon for
business and economic efficiency. All four leaders said they would try to “harmonize” their
greenhouse gas emissions targets for 2050 by developing mid-term targets. Washington already
has a 2035 target, and the rest of the states will examine if this works for them. All states will
establish the more long-term 2050 targets.
2. Implement low-carbon fuel standards in each jurisdiction, meaning again that California and
British Columbia will maintain their standard and Washington and Oregon will move to
Think Progress! Paciﬁc Coast Action Plan on Climate and Energy! Page 1 of 2
implement them. Each jurisdiction hopes to merge the standards into an integrated West Coast
market “that keeps energy dollars in the region, creates economic development opportunities
for regional fuel production, and ensures predictability and consistency in the market.” The
Action Plan agrees to work toward having 10 percent of all new vehicle purchases in public and
private fleets be zero-emissions models by 2016. It also signaled support for high-speed rail
infrastructure and innovation, as well as accelerating investment in other alternative fuels
across the transportation section.
3. Embrace clean energy in a number of different ways. The four jurisdictions said they would
promote ease of access to energy-efficient buildings, ensure climate-smart infrastructure
investment, streamline approval for renewable energy projects, and work to expand the regional
electric grids. Each state will also support EPA regulation of greenhouse gases from power plants,
emphasizing the value of allowing state flexibility.
If they can do this, it will be an important part of getting the U.S., Canada, and the globe the
right policy environment to create jobs and cut carbon pollution.
The three states and British Columbia make up a combined GDP of $2.8 trillion, which would
make it the world’s 5th-largest economy. “The scientific community no longer disputes that
climate change is happening and human-caused,” said Oregon Governor Kitzhaber. “But
regardless of where you stand on this question, there’s another good reason to act: transitioning
to a clean economy creates jobs.”
At the event, leaders from businesses like construction company Skanska USA, Cisco Systems,
and Taylor Shellfish Farms spoke about how business was doing well as their state governments
moved to tackle climate change.
The signatories agreed to “where appropriate and feasible, link programs to create consistency
and predictability” to account for and reduce carbon pollution across the four jurisdictions. With
an eye toward a global agreement in 2015, these heads of state saw commitments to reduce
their own carbon emissions as a signal to national and sub-national governments that such an
agreement was essential.
The Pacific Coast Collaborative was established in 2008 among the four signatory governments
plus Alaska (which did not sign the Action Plan) to help them collaborate on challenges facing
the North American West Coast — among them, emergency management, clean energy, and
Ocean acidification, for example, affects everyone. But it particularly threatens the economies
of coastal states. The Action Plan calls for the American and Canadian governments to work to
research and monitor ocean acidification to “understand its causes and impacts.”
The Western Climate Initiative was a regional cap-and-trade agreement in 2007 between
between California, Arizona, New Mexico, Utah, Montana, Oregon, Washington, and four
Canadian provinces. It had been scheduled to go into effect in 2012, but with the midterm
elections in the few years preceding the deadline that resulted in the losses of climate hawks,
California’s AB 32 and British Columbia’s carbon tax were essentially the only two programs left
standing when the dust cleared.
This new agreement could mean that efforts like this to lower carbon emissions are alive and
well, depending on how each government implements the plan.
Think Progress! Paciﬁc Coast Action Plan on Climate and Energy! Page 2 of 2
FOR IMMEDIATE RELEASE
Investors ask fossil fuel companies to assess how
business plans fare in low-carbon future
Coalition of 70 investors worth $3 trillion call on world’s largest oil & gas,
coal and electric power companies to assess risks under climate action and
‘business as usual’ scenarios
For more information, contact
Aaron Pickering — Ceres | email@example.com | phone: 617-247-0700 ext. 148
James Leaton — Carbon Tracker | firstname.lastname@example.org | phone: +44-7841-570-657
BOSTON, MA Oct 24, 2013
A group of 70 global investors managing more than $3 trillion of collective assets today
launched the first-ever coordinated effort to spur 45 of the world’s top oil and gas, coal and
electric power companies to assess the financial risks that climate change poses to their
Recent studies by the Intergovernmental Panel on Climate Change and the International
Energy Agency have suggested that, in order to achieve the international goal of limiting
global warming to 2˚C, the world will need to live within a set carbon budget, and a
significant portion of proven global fossil fuel reserves will need to be left in the ground.
The world is currently, however, on a path toward global warming of 4˚C or more, which the
World Bank warned must be avoided in order to prevent catastrophic climate change
The investors, most of them based in the United States and Europe, sent letters to the fossil
fuel companies last month, requesting detailed responses before their annual shareholder
meetings in early 2014. Investors signing the letters include California’s two largest public
pension funds, the New York State and New York City Comptrollers, F&C Asset
Management and the Scottish Widows Investment Partnership.
The investor effort, called the Carbon Asset Risk (CAR) initiative, is being coordinated by
Ceres and the Carbon Tracker initiative, with support from the Global Investor Coalition on
“We would like to understand [the company’s] reserve exposure to the risks associated with
current and probable future policies for reducing greenhouse gas emissions by 80 percent
by 2050,” the investors wrote in their letter to oil and gas companies. “We would also like to
understand what options there are for [the company] to manage these risks by, for example,
reducing the carbon intensity of its assets, divesting its most carbon intensive assets,
diversifying its business by investing in lower carbon energy sources or returning capital to
According to the Unburnable Carbon report, in 2012 alone, the 200 largest publicly traded
fossil fuel companies collectively spent an estimated $674 billion on finding and developing
new reserves – some of which may never be utilized. This initiative highlights the
opportunity to redirect this capital, rather than it being wasted on high carbon assets that
could become stranded.
Ceres’ Press Release! Page 1 of 4
“The world is taking climate change seriously and global pressures to reduce fossil fuel use
will only grow stronger,” said Jack Ehnes, CEO of the California State Teachers’ Retirement
System (CalSTRS), the nation’s second largest public pension fund with $172 billion under
management. “As long-term investors, we see the world moving toward a low-carbon future
in which fossil fuel reserves that companies continue to develop may actually become a
liability, which could take a toll on shareholder value.”
“Demand for coal has been falling in key markets. Climate policy and economic changes
in Asia mean this trend could soon become permanent. Analysts tell us that demand for oil
could weaken too before long,” said Craig Mackenzie, Head of Sustainability at Scottish
Widows Investment Partnership, one of Europe’s largest asset management companies.
“Companies must plan properly for the risk of falling demand by stress-testing new
investments to minimize the risk our clients’ capital is wasted on non-performing projects.”
“We have a fiduciary duty to ensure that companies we invest in are fully addressing the
risks that climate change poses,” said Anne Stausboll, CEO of the California Public
Employees Retirement System (CalPERS) and co-chair of the Ceres board of directors.
“We need robust long-term strategies that reflect the reality we face. This is using science
and evidence to underpin the economics. We cannot invest in a climate catastrophe.”
“Fossil fuel companies are the biggest sources of carbon pollution by far, which means they
are also uniquely positioned to lead the world in responding to global climate risks,” added
Ceres president Mindy Lubber, speaking during a call with reporters today.
Ceres’ Press Release! Page 2 of 4
As of October 23, investors had received preliminary responses from 30 companies.
Detailed answers to the investors’ questions will come in follow-up responses. Participating
investors are asking their peers to support this effort.
Ceres’ Press Release! Page 3 of 4
"Many of the responses investors have received from the companies thus far acknowledge
that there is a legitimate risk issue around carbon reserves, and companies are open to
continued engagement from the investor community to determine the scope,” said Mark
Fulton, a member of the Carbon Tracker’s Advisory Board and a Ceres adviser. “Fossil fuel
companies will prove to be more responsible stewards of capital in the future if they take
action now to manage the risks posed by climate change.”
“There’s a real appetite among our clients to invest in companies that are innovating to
address climate change,” said Dr. Julie Gorte, Senior Vice President for Sustainable
Investing at Pax World Management Corp., a sustainable and responsible asset
management firm. “Tackling climate change is both a business risk and opportunity, so it is
in the interest of energy companies and utilities to assess, disclose and develop strategies
to mitigate carbon asset risk.”
"Institutional investors must think over the long-term, which means that we must take
environmental risks into consideration when we make investments," said New York State
Comptroller Thomas P. DiNapoli, trustee of the $160.7 billion New York State Common
“Assets are already being written down due to increasing competition between energy
sources, air quality standards being introduced to reduce health impacts, and measures to
reduce carbon pollution combining to change the energy landscape,” said James Leaton,
Research Director at Carbon Tracker. “Avoiding high cost, high carbon projects which are
failing to deliver a return on capital will improve shareholder returns.”
For more information on carbon asset risk, visit www.carbontracker.org.
Ceres is a nonprofit organization mobilizing business and investor leadership on climate
change, water scarcity and other sustainability challenges. Ceres directs the Investor
Network on Climate Risk (INCR), a network of over 100 institutional investors with collective
assets totaling more than $12 trillion. Ceres also directs Business for Innovative Climate &
Energy Policy (BICEP), an advocacy coalition of nearly 30 businesses committed to working
with policy makers to pass meaningful energy and climate legislation. For more information,
visit http://www.ceres.org or follow on Twitter @CeresNews.
About Carbon Tracker initiative
The Carbon Tracker initiative is a non-profit company established by its directors to align the
capital markets with efforts to tackle climate change. Carbon Tracker has demonstrated the
incompatibility of current capital expenditure plans in the energy sector with delivering
emissions reductions to improve air quality and prevent climate change. This was captured
in its 2013 report: ‘Unburnable Carbon: Wasted Capital and Stranded Assets’ Learn more at
http://www.carbontracker.org or follow on Twitter @CarbonBubble.
Ceres’ Press Release! Page 4 of 4
"The Cancun Agreements," (2010).
International Energy Agency, "World Energy Outlook 2012," (2012).
The World Bank, "Turn Down the Heat: Why a 4˚C Warmer World Must Be Avoided," (2012).!
International Energy Agency, "World Energy Outlook 2012."
Paul Spedding, Kirtan Mehta, and Nick Robins, "Oil & Carbon Revisited: Value at Risk from 'Unburnable' Reserves," (HSBC Global Research,
Simon Redmond and Michael Wilkins, "What a Carbon-Constrained Future Could Mean for Oil Companies' Creditworthiness," (Standard &
Carbon Tracker and The Grantham Research Institute, "Unburnable Carbon 2013: Wasted Capital and Stranded Assets," (2013).
National Climate Assessment and Development Advisory Committee, "Draft Climate Assessment Report," (United States Global Change
Research Program, 2013).
C.B. Field et al., "Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation," (IPCC, 2012).
Cynthia McHale and Sharlene Leurig, "Stormy Future for U.S. Property/Casualty Insurers: The Growing Costs and Risks of Extreme Weather
Events," (Ceres, 2012).
International Energy Agency, "Redrawing the Energy-Climate Map," (2013).
U.S. Department of Energy, "U.S. Energy Sector Vulnerabilities to Climate Change and Extreme Weather," (2013).
Lawrence Kumins and Robert Bamberger, Congressional Research Service, “Oil and Gas Disruption From Hurricanes Katrina and Rita,
”Updated Apr. 6, 2006, http://www.au.af.mil/au/awc/awcgate/crs/rl33124.pdf.!
International Energy Agency, "Redrawing the Energy-Climate Map."
Andrew Peaple, "Europe's Oil Majors Should Focus on Shareholders," Wall Street Journal 2013 and della Vigna, M et al. “No Light at the End
of the Tunnel” (Goldman Sachs Equity Research, 2013)
Rats, M et al “Why ‘Big Oil’ has Underperformed so Much…” (Morgan Stanley Research Europe), Syme, A et al. “Investing for Commodity
Uncertainty”.(Citi Research, 2013); della Vigna, M et al “Death and Rebirth of an Industry” (Goldman Sachs Equity Research, 2012)
A similar question appears in: Carbon Disclosure Project, "Investor Cdp 2013 Information Request," (2013).!
Carbon Asset Risk Initiative Investor Signatories as of October 2013!
Carbon Asset Risk Initiative Investor Signatories as of October 2013!
Carbon Asset Risk Initiative Investor Signatories as of October 2013!
Carbon Asset Risk Initiative Investor Signatories as of October 2013!
Is the tide turning on ‘big carbon’? The surprising step
change in the stranded assets debate.
Free-to-air ‘don’t miss’ article! Stranded assets? Sustainable investors must
understand oil, gas, coal sector cost curves…
by Craig Mackenzie | August 30th, 2013
For the last few years NGOs have been warning of the investment risks of climate
policy for fossil fuel producers. The warnings have largely fallen on deaf ears amongst
mainstream investment managers. As one oil analyst put it: “Aggressive carbon
regulation may well cause stranded assets, but you don’t seriously think that’s likely to
happen any time soon.” Investor ears should be deaf no more. Coal mining share
prices have fallen by two thirds in two years. Several oil majors are seeing their lowest
rating against the market for a decade. A wave of new broker research from Bernstein,
Citi, Deutsche Bank, Goldman Sachs, HSBC and Morgan Stanley (listed at the foot of
the article), takes a markedly bearish view of the prospects for these sectors, pointing
to serious diﬃculties with their economics, and even, in some cases, suggesting they
could be about to go into ‘terminal decline’. An Economist front cover (Aug 3rd)
summed it up, showing a dinosaur at a gasoline pump headlined ‘Yesterday’s fuel.’
This bearish turn in investor sentiment dramatically changes the debate about stranded
assets, and could oﬀer the most important ESG integration and engagement
opportunity for a long time.
Carbon Tracker, an NGO, has been extraordinarily successful in winning press
coverage for its ‘unburnable carbon’ thesis. Its argument rests on a simple equation:
the amount of carbon embedded in the reserves of the listed oil and coal mining
companies is bigger than the amount we can safely emit to avoid dangerous climate
change (a 2°C rise in temperatures). So, if governments were to regulate carbon
emissions to put us on track for 2°C some reserves will become ‘unburnable’, creating
the risk of stranded assets and wasted capital expenditure (cap ex). Carbon Tracker
claims that these companies share prices may therefore be overvalued, creating a
‘carbon bubble’ whose bursting would hurt investors exposed to oil, gas and mining
companies. The Carbon Tracker work has also been used in the US by Bill McKibben
and the Fossil Free campaign to justify divestment from these companies.
http://www.responsible-investor.com/home/article/c_mac_sa/P0/! Page 1 of 5
The struggle for share price relevance
While I struggle to ﬁnd industry analysts who buy Carbon Tracker’s more sensational
claims (e.g. a carbon bubble may create systemic risks for the UK economy), there is
widespread agreement about the basic stranded assets logic. Carbon regulation is a
big risk for fossil fuel companies. But, as I’ve discussed on RI previously [refer to URL
http://www.responsible-investor.com/home/article/craig_mac_externalities/] in practice
it is hard to persuade oil analysts to factor these risks into their company valuations
and investment decisions. The ﬁrst problem is that the unburnable carbon argument is
hypothetical. Only if carbon emissions regulation looks likely to move to a 2°C path will
stranded assets become a material risk. Given the ongoing failure of governments to
make substantial progress towards a global deal (and the climate scepticism of the
entrenched Republican majority in the US House of Representatives), the probability of
a 2°C path seems depressingly low and stranded assets remain a hypothetical issue.
The second problem is timing.
Using standard discount rates, impacts that are 10 or 20 years ahead shrink dramatically
in analyst forecasts. If we don’t look likely to switch to a 2°C path till 2025 or 2030,
then even a big subsequent impact on earnings is largely discounted away. It shrinks
further still if you adjust for its low perceived probability. As a result, the ﬁnancial risk of
unburnable carbon has failed to make it into the premier league of share-price relevant
‘Yesterday’s fuel’, today’s investment risk.
The new investment bank research changes this picture dramatically. Recent reports
from Bernstein and Citi, suggest that demand for coal and oil may soon go into decline
globally as a result of new trends, without any need for a global climate deal and a step
change in climate policies. Citi argues that existing fuel eﬃciency standards and
growing oil-to-gas switching will mean global oil demand could peak by 2020.
Bernstein argues that coal demand is falling nearly everywhere except China, but that it
will fall there too by 2017. If these bearish views turn out to be right, this marks a
dramatic upgrade in the perceived probability of stranded asset risk, and brings its
timing into the current decade. (As well as raising the welcome possibility that global
carbon emissions might peak much sooner than previously feared). And it is not only a
matter of possible falling demand. Analysts at Goldman Sachs and Morgan Stanley are
also raising the alarm about rising costs and declining return on equity among the oil
majors, and questioning the sustainability of their cap ex programmes. While equities in
general have been enjoying a bull run, share prices for most of the majors have been
ﬂat for several years, and this despite sustained $100/barrel oil prices. Morgan Stanley
argues that this results from escalating costs and unsustainably high levels of cap ex.
Goldman suggests some oil majors would see higher share prices if they delayed or
cancelled new projects and returned the money to shareholders instead. The mining
sector is already well beyond this point. The share prices of pure play coal companies
have already fallen by two thirds or more since. Disappointing demand plus the huge
investment in new mining capacity in the last decade means that the market is
http://www.responsible-investor.com/home/article/c_mac_sa/P0/! Page 2 of 5
chronically oversupplied. Thermal coal prices have fallen by a third in two years as a
result. Companies have cancelled expansion plans and are selling assets. One
signiﬁcant US coal miner has ﬁled for bankruptcy. The prospects for future growth look
uncertain at best, and if Bernstein is right, grim indeed. While the gloomiest investment
bank predictions may turn out to be overdone, their existence underlines profound new
uncertainty about future demand. This uncertainty makes stranded assets a risk that
today’s investors would be unwise to ignore in their company valuations and
investment decisions. Crucially, this uncertainty is not contingent on some desirable
but depressingly out of reach global climate deal (though a deal would only make
matters even worse for producers).
The cost-curve decides unburnability
As well as increased investment-relevance, the new analysis gives sharper focus to the
mechanism that will, sooner or later, strand assets. Counter-intuitively, perhaps, risk
exposure is not a function of the amount of carbon embedded in company reserves.
Risk arises instead from the position of the company on the industry cost curve. This is
basic economics. When demand falls, the marginal producers at the expensive end of
the cost curve become unproﬁtable and mothball or close capacity, while the
producers at the cheap end remain proﬁtable. The PDF link in the downloads section
– see left hand column – is an oil industry project cost curve sourced from Citi
Research. It shows that marginal oil projects require US$90/bbl to make a return
(Breakevens reﬂect NPV zero using a 10% discount rate). The cost curve is what, in
practice, will drive the ‘unburnability’ of carbon and potential asset stranding. As
demand falls, expensive carbon will become unburnable ﬁrst, cheap carbon later. Up to
a point, an oil company can have as much carbon in its reserves as it likes, as long as
it is cheap to extract. Carbon Tracker’s point is not that no more carbon can be burned,
but that only some of it can. The question is what will get burned and what will be left
in the ground? The cost curve provides the answer. Companies like Petrobras have
large amounts of carbon embedded in their reserves, but its production is at the cheap
end of the cost curve: their exposure to falling-demand risks are low. Canadian oil
sands, also with large amounts of carbon, lie at the opposite end of the cost curve and
face greater stranded assets risk. Reserves do have some relevance to risk: their
nature and location roughly predicts a company’s future position on the cost curve, but
they are only a long-term indicator. Over the time horizons that drive share prices, the
position on the cost curve of a company’s current and development projects is what
matters. The break-even costs and rates of return of these wells will determine a
company’s ability to generate cash over the next decade, and this drives share prices.
Campaigners will argue that these bearish analyst views justify blanket divestment from
the oil, gas and mining sectors. But analyst pessimism changes little for trustees.
Blanket exclusions remain legally questionable. If the bears turn out to be wrong, a
hydrocarbon-free pension fund could severely underperform the market. While
divesting from pure-play coal miners probably would not impact portfolios much either
http://www.responsible-investor.com/home/article/c_mac_sa/P0/! Page 3 of 5
way – they are just too small – a blanket divestment from large cap oil, gas and mining
companies would be a huge risk. The right strategy for ﬁduciary investors is to
eﬀectively integrate cost curve risks into investment decisions and to engage to reduce
the risk of stranded assets and wasted capital. What might integration and
engagement look like? The most interesting opportunities relate to oil and gas rather
than coal. This is surprising, perhaps, given that the vast majority of unburnable carbon
reserves are in the coal sector. The reality is falling coal prices and overcapacity mean
that most companies have already stopped investing in new capacity. Carbon Tracker
was right to ﬂag the potential for ‘wasted cap ex’ in its recent report, but as far as coal
mining is concerned this is no longer a problem. No capital is being wasted if no capital
expenditure is happening. Similarly, from an ESG integration perspective, share price
falls over the last two years have already priced in a great deal of bad news for the coal
sector. SWIP, like many investors, has reduced its active exposure to pure play coal
miners to zero in both equity and ﬁxed income. There is still exposure to the big
integrated miners, but coal is a small and declining share of their revenues. Of course,
if you are still investing in pure play coal mining, you have a much more interesting
question to answer. Is the current downturn a cyclical low, or is Bernstein right that the
sector is now in terminal decline?
The story is very diﬀerent in the oil and gas sector. Capital expenditure is proceeding
apace, with an eyewatering $2 trillion planned for deployment in the 300 biggest
projects in development up to 2020. And, unlike coal, most investors have very
substantial exposures to the sector. If Citi is right that share prices do not reﬂect the
risks falling demand might pose for some companies, then there is a signiﬁcant
potential ESG integration opportunity. Investors could usefully seek to develop a much
clearer sense of companies’ aggregate cost curve position and what would happen to
their cash ﬂows in the event of lower oil prices or less gas demand due to competition
from cheap solar or wind. Some companies are much better positioned for demand
uncertainty than others, but this may not be reﬂected in their share prices. There is also
an interesting engagement angle. The fact that many companies have delivered poor
share price performance and historically low and falling returns on equity is making
mainstream investors unhappy. They want to see more cost control and capital
discipline. If companies fail to exert this discipline they may have to cut their dividends.
This unusually acute shareholder focus on cap ex levels presents a rare window of
opportunity to challenge oil company strategy and test whether it adequately takes
account of downside demand risks. Particular scrutiny is needed for the bottom
quartile projects at the right hand end of the cost curve that will not breakeven if
demand contracts. If Goldman Sachs is right about the share price beneﬁts, investors
would see better returns if companies returned capital to them via share buybacks
rather than investing in these projects. The message is already getting through. My oil
analyst raised some of these questions at a recent meeting with the CEO of one oil
major. The CEO responded that he’s been hearing this message “loud and clear” from
investors: greater capital discipline is a top priority. We’ve also seen activist hedge
funds mount proxy battles partly targeting this issue. The proxy initiative at Hess earlier
this year met with success both in terms of both the company response and
subsequent share price improvements. There are also questions to ask about company
http://www.responsible-investor.com/home/article/c_mac_sa/P0/! Page 4 of 5
remuneration policy. Are directors’ incentives suﬃciently focused on driving capital
discipline (via metrics like return on capital employed or return on equity) or is there too
much emphasis on delivering growth irrespective of its quality? Now that shareholders
are increasingly willing to back their say on pay with votes, this may oﬀer a concrete
place to focus discussion with some companies.
One ﬁnal point merits emphasis. Unlike the majority of ESG issues, the cap ex problem
described above is a genuine top rank investment issue for mainstream fund
managers. Enhanced analysis oﬀers the real prospect of portfolio impact. This also
means that failure of companies to respond to engagement may credibly aﬀect
investment decisions. But this lever can only be pulled if ESG investors have the buy-in
of their mainstream equity colleagues. At company meetings, it is they, not the ESG
specialists who need to be pushing the CEO on capital discipline. The ESG community
certainly has an important part to play in this debate, but only if it learns to speak the
language of cost curves, IRRs and free cash ﬂows. The intricacies of oil sector
economics are new to many ESG specialists, which creates a challenge. To move us
along the learning curve, the Institutional Investors Group on Climate Change (IIGCC) is
developing material on this topic to enable its members to better discuss these issues
with their energy analysts and companies.
For more information contact Morgan LaManna
Craig Mackenzie is Head of Sustainability at Scottish Widows Investment
Partnership and chairs the Corporate Programme at IIGCC.
Investment bank research referred to in the article
• Parker, M and Ho, P (2013) “Asian Coal & Power: Less, Less, Less…The
Beginning of the End of Coal” Bernstein Research;
• Kleinman, S et. al (2013) “Global Oil Demand Growth – The End Is Nigh” Citi
• Syme, A et al. (2013) “Global Oil Vision: Investing for Commodity Uncertainty”
• Hsueh, M and Lewis, M (2013) “Thermal Coal: Coal at a Crossroads” Deutsche
Bank Markets Research;
• Della Vigna, et al (2012) “Death and Rebirth of an Industry”. Goldman Sachs;
• Della Vigna et al. (2013) No light at the end of the tunnel Goldman Sachs;
• Rats, Martijn et al. (2013) “Why ‘Big Oil’ has Underperformed So Much” Morgan
• Robins et al. 2012 “Coal and Carbon” HSBC Global Research.
http://www.responsible-investor.com/home/article/c_mac_sa/P0/! Page 5 of 5
Wall Street Demands Answers From Fossil Fuel
Producers on 'Unburnable' Carbon
Groundbreaking initiative is forcing an investor rethink: What's the value
of fossil fuel stocks if companies must leave reserves in the ground?
October 24, 2013
A well-heeled coalition of investors is
asking top fossil fuel companies to
calculate the risks of plowing billions
into new oil, gas and coal projects.
They fear that carbon emission limits
and slowing demand will turn them into
bad investments that leave investors
The requests, contained in letters sent
to 45 companies last month, are part of
an initiative aimed at persuading oil
producers and others to rein in their
quest to stockpile more carbon energy.
They hope to do so by tapping into
growing concerns that climate policies
and market factors could prevent
companies from selling all of their
reserves of fossil fuels, which are still
Companies with large amounts of such
"unburnable" carbon resources could
see their stock prices slashed,
clobbering the value of investment portfolios that hold the shares. By one estimate, as much as 30
percent of the value of some of the world’s stock exchanges is in proven fossil reserves.
In the letters, the coalition asks the companies to examine and disclose their "exposure to the risks
associated with current and probable future policies for reducing greenhouse gas emissions by
80% by 2050."
The initiative is potentially groundbreaking because it comes at a time when a growing number of
large shareholders of energy producers are similarly questioning whether costly projects that are
underway or on the drawing board will pay off. That rare alignment of interests could convince
! Page 1 of 4
Mindy Lubber, president of Ceres, speaks at a conference
in 2012. On Thursday, Ceres launched an initative with the
backing of investors representing about $3 trillion. They're
demanding that fossil fuel firms divulge the financial risks
of their "unburnable" carbon reserves. Credit: Julie
company boards to weigh the risks of strict climate policies alongside other factors as they review
"We came to this with the goal of really changing the investment behavior of these companies in
the mid- to long-term horizon," said Andrew Logan, director of the oil program at Ceres, a nonprofit
that organizes businesses and investors interested in climate change and other issues.
"We have real optimism because we're operating in a context where there's actually a lot of
dissatisfaction with how the fossil fuel industry is being run—and that's really different from four or
five years ago, when the companies were seen as sort of bulletproof."
That's what helped the initiative win the backing of 70 institutional investors, representing about $3
trillion in assets. The list includes large pension funds from California and New York, as well as
investment firms in Scotland, Great Britain and Australia. Ceres launched the project along with the
Carbon Tracker Initiative, a nonprofit that links capital markets to climate issues. The groups
announced the initiative Thursday in a press conference.
The campaign elevates the discussion of "unburnable carbon," a term coined by The Carbon
Tracker to describe a relatively new concept borne out of scientific research that's now being
championed by a host of other groups worried about climate change. It highlights the possibility
that national and global agreements to limit carbon emissions would force fossil fuel companies to
leave large oil and coal deposits in the ground because burning them would exceed the limits.
That's a development that would "strand" those assets and erase their value.
John Felmy, chief economist at the American Petroleum Institute, an industry advocacy group, isn't
"This is either delusion or wishful thinking on the part of some folks who just don’t like fossil fuels,"
he said. "There's just no justification for that argument. The notion that somehow [oil] is somehow
unburnable—from the perspective of keeping people warm, keeping economies going and so on,
the reality of this is really clear."
Still, doubts are emerging.
The initiative's central question—whether it's prudent for fossil fuel companies to continue investing
based on business-as-usual scenarios—is now being asked by analysts at Wall Street firms such
as Goldman Sachs, Citigroup, HSBC, Sanford C. Bernstein Ltd. and others.
A January report from HSBC underscored the potential impact of unburnable reserves by
estimating that emissions caps and lower oil prices could put up to 60 percent of the market value
of certain European companies at risk. "We believe that investors have yet to price in such a risk,
perhaps because it seems so long term," the report noted. "However, we believe it does give an
indication of the potential impact on the sector."
Increasingly, industry analysts are also worrying about demand projections for oil and other fossil
fuels, not just pending climate laws.
What if China's energy demand falls well short of the industry's lofty expectations? What happens
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to oil if natural gas displaces it in more markets? Can oil and gas companies continue bankrolling
the soaring expenses of both new projects and current production without threatening the quarterly
payouts investors have relied on for decades? What happens to all those hard-to-reach reserves if
world oil prices sink below break-even levels?
"It's a really different world where you have big mainstream analysts saying that it’s not peak oil
supply that we should be concerned about—it's the reverse, peak oil demand," said Craig
Mackenzie, head of sustainability at the Scottish Widows Investment Partnership, which manages
$234 billion in assets. The firm owns stock in fossil fuel companies (except coal), and is one of the
companies backing the new Ceres initiative.
For instance, in a new report called "Global Oil Demand Growth—The End is Nigh," Citigroup
disputed the broadly held belief that the world's thirst for oil will continue its inexorable rise through
to 2030. The study was based on assumptions about fuel efficiency improvements that are already
planned for the United States, Europe and China and the steady shift to natural gas-powered
Under Citigroup's analysis, Mackenzie said, "You get global oil demand potentially peaking around
2020, which is a very different story than you get from oil industry forecasts."
Coal Is Particularly Worrisome
But the biggest question for concerned investors is how climate policies will unfold. If governments
don't implement tough climate laws, then fossil fuel companies could burn through their reserves
as planned providing other factors don't intervene. However, if national or global policies require
steep cuts in the use of fossil fuels, they could gut the value of those companies that get stuck with
unburnable resources they can't cash in.
The outlook for companies laden with coal is particularly troublesome, analysts say. Mackenzie
cited a Bernstein & Co. report that noted that coal demand is falling everywhere except China, and
that coal demand there will begin to fall by 2017. New efforts to cut worldwide carbon emissions
would accelerate that downward shift, since coal can have three times as much embedded carbon
than other fuels.
In the United States, a mix of plummeting demand and environmental restrictions on harmful
emissions has already stranded coal deposits that can't be burned. That shift caused the share
prices of coal companies to fall by two-thirds over the last two years, Mackenzie said.
Predictions for natural gas are far rosier, at least in the short term, since it is replacing the use of
coal and oil in many industries.
"These concerns about climate impacts have been around for awhile," said Logan from Ceres.
However, he said, the potential climate costs are starting to resonate more broadly with fossil fuel
industry investors and the companies themselves. The theory about stranded carbon assets, he
added, "has risen from what was seen as a fringe issue a very short time ago, to now firmly being
in the mainstream."
What's made the difference is the magnitude of what's at stake, according to Mackenzie of the
Scottish Widows Investment Partnership.
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"We're talking about trends that are massively significant to share prices," he said. "We're moving
to a space where these issues are just much, much more material than they have been."
The Origins of the Debate
Today's debate over the financial impacts of burning fossil fuels recklessly has its roots in a
landmark 2009 climate paper by scientists led by Malte Meinshausen, a climatologist at Germany's
Potsdam Institute for Climate Impact. The researchers found that at the current rate of fossil fuel
use, dangerous warming—surpassing the two degree Celsius limit—could hit the globe in as few
as 11 years.
The paper included another startling conclusion: That burning all the proven and economically
retrievable fossil fuel reserves already claimed by oil, gas and coal companies would add enough
carbon to the atmosphere to "vastly exceed the allowable CO2 emission budget for staying below
2C" of warming.
That got the attention of the international financial community, because the values of the world's
energy companies are linked to future earnings from selling oil, gas and coal stockpiles that
scientists now suggest might have to remain underground.
Since then, the findings have given rise to often-cited reports by the Carbon Tracker group of
London. Environmental activist Bill McKibben, founder of the activist group 350.org, also expanded
on the 2009 paper's conclusions in a Rolling Stone article and launched a speaking tour around
Last month, the concept of stranded and unburnable carbon resources gained the endorsement of
the United Nations Intergovernmental Panel on Climate Change, or IPCC, the world's largest
scientific body on global warming. The latest IPCC report embraced the view that existing reserves
of fossil fuels contain more carbon than what can be burned without exceeding 2 degrees of
Building on that and other publicity, the Ceres-led initiative is now taking the issue to the board
rooms of BP, ExxonMobil and other top fossil fuel producers.
"We need to understand how the companies think about these risks, how they prepare for them,
and how they're taken into account in their capital investment plans," said MacKenzie of the
Scottish investment company.
Logan, the director of Ceres' oil program, said the responses have been encouraging so far.
"We've seen very few companies dismiss the issue out of hand," he noted. "Lots of them
essentially acknowledge that there is a real tension between their long-term business plans and
any attempt to deal with climate change. That, to me, is a constructive place to start."
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Fighting the fuel giants for a fully renewable future
Tackling the world’s most powerful corporations, whose interest it is
to continue consuming fossil fuels, is a formidable but essential task
Friday 25 October 2013
The viability of a fossil fuel future is
rarely connected to the human rights
abuses required to sustain it. How
often do we think about where oil and
gas is obtained? Are the Europeans or
Americans any more aware? This
deliberate depoliticisation of our
energy present, by the vast majority of
pol i ti ci ans, j ournal i sts and sel f-
described public intellectuals, is
leading to an environment that is both
unsustainable and dangerous for the
But don’t worry, Australian Prime Minister Tony Abbott says climate change has nothing
to do with bush fires. Move along. Remain relaxed, comfortable and consume skewers
of chewy coal and grisly yellow cake with a touch of BBQ sauce.
One might question why there is such resistance to transitioning to renewable energy
and which entrenched interests are at stake.
Buried in the heart of New York Times best-selling author Steve Coll’s 2012 book,
Private Empire: ExxonMobil and American Power, are fascinating insights into one of
the most powerful companies on the planet.
Scientists working for the corporation examined ways that climate change could affect
ocean and surface trends and allow the firm to source new oil and gas. “Don’t believe
for a minute that ExxonMobil doesn’t think climate change is real,” a former manager
tells the author. “They were using climate change as a source of insight into
By 2004 ExxonMobil, both internally and externally, were forecasting that there was little
to no chance of a global response to warming temperatures in the coming decades.
Former CEO Lee Raymond publicly dismissed the seriousness of the problem.
ExxonMobil and Walmart trade spots year to year as America’s biggest company and
this explains why both of them are so reluctant to do anything that they perceive to
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PetroChina's oil rigs dig the banks of a snow
covered lake in Daqing. Photograph: AP
affect their bottom line. Acting on climate change was not a priority while continuing
business as usual was so profitable.
But Exxon wasn’t blind to the changing agenda. Coll succinctly outlines the dilemma
faced by the company’s forecasters: “The issue here was not whether the world had the
technologies to forswear oil; it was whether governments, panicked by climate change,
would intervene to change price incentives to favour clean energy, knowing that such an
intervention might curtail overall economic growth, at least for a time.”
The truth remains that the free market will not solve the climate change problem.
Hoping and presuming that a carbon tax or emissions trading scheme will ameliorate
steadily worsening pollution, as too many Australians who should know better have
claimed for years, is missing the point. With global energy markets currently in flux –
witness the possible end to the domination of Arab hegemony and subsequent shift in
Middle East geopolitics, thanks in part to America’s pushing of shale gas deposits – old
assumptions are ripe for ditching.
A new book, The Oil Road: Journeys from the Caspian Sea to the City of London,
details the brutal realities of how comfortable Europeans consume without thought as to
how the their cars are fueled. The multinational BP operates the main pipeline that goes
through Georgia, Turkey and despotic Azerbaijan. This has become a key geostrategic
struggle between Russia, China, Iran and America for domination of the energy market.
A growing rift between Washington and Saudi Arabia, affectively known as a “protection
racket” relationship, remains unpredictable.
One of the master illusions of the modern age is how governments and the media so
rarely discuss the ways in which our energy needs are sourced. It’s a problem that
understandably angers the voiceless, including Indonesians in Aceh, suing Exxon for
allegedly supporting Indonesian troops committing human rights abuses while
protecting the highly lucrative natural gas pipeline and processing facility at Arun, a
claim that Exxon denies.
The debate in Australia over fossil fuels is staid and separated from a global debate.
What happens here does affect the world, as environmentalist Bill McKibben correctly
said on his recently sold-out tour of Australia in reference to mooted expanded coal
plans in Queensland. Such plans literally threaten global temperatures.
Queensland Premier Campbell Newman, when demanding Abbott approve massive
coal expansion, simply said that he must be allowed to “take the state forward
economically”. The miners’ lobbyists have done their work effectively. What should be
discussed is the need not to burn fossil fuels and leave carbon in the ground forever.
Research released in April by the Carbon Tracker Initiative and the Grantham Research
Institute on Climate Change and the Environment at the London School of Economics
found that, “despite fossil fuel reserves already far exceeding the carbon budget to
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avoid global warming of more than 2°C, $674bn was spent last year finding and
developing new potentially stranded assets. If this continues for the next decade,
economies will see over $6tr in wasted capital.” Convincing companies such as Exxon
not to exploit the resources under their control will take economic and political pressure.
A campaign this month sees dozens of global investors, managing over $3tr of assets,
writing to the world’s biggest fossil fuel companies asking them to assess, before annual
shareholders meetings in 2014, how the real cost of changes in price and demand could
affect their business plans. Craig Mackenzie, head of sustainability at Scottish Widows,
one of Europe’s largest asset management firms, says that, “companies must plan
properly for the risk of falling demand by stress-testing new investments to minimise the
risk our clients’ capital is wasted on non-performing projects.”
Embracing a fully renewable future isn’t a technological problem; it’s a political fix that
will only come with a massive fight. Scandinavia is leading the world in examples of
divesting from fossil fuel companies. Oxford University recently found that these
campaigns are growing in strength globally. It must be considered in Australia, with the
worst polluters facing financial pain – the only message they’ll understand – for
continuing with business as usual. Rio Tinto, I’m looking at you (amongst others).
Vast research has been undertaken in the last years that reveals the possibility of
moving to a sustainable and cost-effective energy future. Clean energy reports are
being issued constantly and the Greens party have provided a realistic roadmap.
Even the World Bank, that bastion of neo-liberal “reform”, is warning about the dangers
of a four-degrees warmer world, causing increased risk of natural disasters and sea-
level rises. The latest report by the Intergovernmental Panel on Climate Change
rationally explains the dangers without immediate action. The United Nations
Environment Program released a 2012 report that outlined the required cuts to global
emissions to avoid catastrophic climate change in both the developed and developing
world. Australia’s Beyond Zero Emissions have a zero carbon plan.
Tackling the world’s most powerful corporations, whose interest it is to continue
consuming and burning fossil fuels, will take nothing short of a soft revolution. I’ve long
argued against climate activists who use cataclysmic language when discussing climate
change; this alienates the vast bulk of a population that needs to believe in the
importance of changing habits and mindsets. But this doesn’t mean that hoping and
praying for polluting companies to realise they need to reform or die won’t take massive
public pressure, divestment and new opportunities.
Uncontrolled capitalism is sold as the best system to ensure global prosperity. In reality
its strongest advocates, with help from its political and media mates, is ruining the
chances of a healthy globe for all its citizens, not just the wealthy in the London, New
York and Sydney bubble. Climate justice, for the silenced in our corporate media, is just
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Investors sound the alarm on climate change
Why a coalition worth $3 trillion is calling on the oil, gas, coal, and energy
industries to reassess the risks of a warming planet
By Ryan Bradley, senior editor
October 24, 2013
FORTUNE -- If human-caused climate change is accepted as a certainty -- it is, by 95% of
scientists (a higher percentage, by the way, than agree that smoking causes cancer) -- what
are the ramifications for business? If you are in the keeping-back-the-sea biz, rising seas will
likely be a boon. If you seek out and extract carbon from the earth (oil or coal, mostly) to be
burned as energy and released into the atmosphere, climate change might be a very grave
The potential problem for oil, gas, and energy companies rests on the "unburnable carbon"
thesis, which elegantly articulates the rock and hard place the industry is hurtling toward. It
states that the amount of carbon embedded in the reserves of the listed oil and coal mining
! Page 1 of 2
companies is bigger than the amount we can safely emit to avoid dangerous climate change (a
2 degree C rise in temperature). As governments begin regulating to stave off the rise in
temperature, much of these reserves will become unburnable -- that's the thesis, anyway, as
argued by Carbon Tracker, an NGO. All this wouldn't be a huge deal if it weren't for the fact
that 70 investors, representing the interests of millions of customers -- from CALPERS to
Rockefeller & Co. to the Scottish Widows Investment Partnership -- worth a collective $3
trillion, believe in the unburnable carbon thesis, and last month wrote a letter to 45 of the
biggest oil, gas, coal, and utility companies in the world (here's the full list), calling on them to
"reserve exposure to the risks associated with current and probable future policies for reducing
GHG [green house gas] emissions ... There is now a widespread view that it is not in the best
interest of investors for companies to expend further capital on low-return projects," the letter
continues. "Government policies to reduce GHG emissions would be likely to further reduce
the returns of these projects."
MORE: How to compete with Amazon
Oil and coal are still wildly efficient and abundant energy sources, but the associated costs of
both pulling carbon out of the ground and burning it are way, way up. This, coupled with a
decreasing demand in much of the world -- cars are more efficient, alternative fuels are getting
better, and there are more of them -- is a potential recipe for disaster if oil and gas companies
continue to ignore the effects of a market changing along with the climate. Even today, prices
have dropped in the U.S. due to excess inventory. This argument isn't from Carbon Tracker
but Craig Mackenzie, one of those 70 signers, from an article he published in Responsible
Investor. Mackenzie is head of sustainability at the Scottish Widows Investment Partnership,
one of Europe's largest fund managers (worth about $236 billion). Jack Ehnes, CEO of the
California State Teachers' Retirement System ($172 billion under management) echoed
Mackenzie's argument today in a press call about the letter, which was coordinated and sent
out by Ceres, a nonprofit that directs the Investor Network on Climate Risk. "As long-term
investors, we see the world moving toward a low-carbon future in which fossil fuel reserves
that companies continue to develop may actually become a liability, which could take a toll on
shareholder value," Ehnes said.
A letter may be just a letter. None of the investors have threatened to pull their money out,
that's not their aim. They are not activists, but realists. The purpose of the letter was to get the
energy industry to be the same.
! Page 2 of 2
This could be Exxon Mobil's biggest threat
Sunday, 20 Oct 2013
In a speech last week, the Secretary General of
the Organization for Economic Cooperation and
Development (OECD) had a message for oil and
gas investors: Their biggest risk isn't a spill or a
blowout or a storm. And for countries deriving a
large portion of revenue from oil and gas, it isn't
the U.S. shale boom's competing with OPEC.
Rather, it is stranded assets in a carbon-entangled
world, according to OECD Secretary General
It's also the biggest risk for any investor exposed to
fossil fuels. The Asset Owners Disclosure Project
estimates that an average 55 percent of pension
fund portfolios are in high-carbon assets or sectors
with major exposure to that sector.
Stocks in companies such as Exxon Mobil and BP are staples of such portfolios because of their
slow-growth, dividend-rich profile, yet few investors ever consider those companies' having to write
off assets as "stranded" underground.
"The looming choice may be either stranding those assets or stranding the planet," Gurría said.
Though his speech made news, Ben Caldecott, who runs the Stranded Assets program at Oxford
University's Smith School of Enterprise and the Environment, said the topic wasn't new.
"Stranded asset risk has been quickly introduced to mainstream investors, and people are starting
to understand the issues," he said.
Understanding doesn't mean embracing the idea in investment valuation and analysis, though.
"The reality is that corporations and investors don't have very much foresight on these issues,"
Caldecott said. "They misprice these risks and don't generally incorporate them into decision-
making. Very few parts in the investment chain are factoring in these issues."
Gurría's remarks ask the audience to imagine Exxon Mobil, sitting on 40 gigatons of hydrocarbons
by some estimates—the company says it has a total resource base of 87 billion barrels of oil
equivalent—having to write off projects around the world. Exxon Mobil is in involved in an
increasingly far-flung dash for new resources, which are increasingly more expensive and
dangerous to extract, and investors complain about the lack of production growth from the largest
U.S. oil company.
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Exxon Mobil deepwater oil rig.
In addition, he said, OECD governments make about $200 billion annually from oil and gas. Russia
gets about $150 billion a year, or 28 percent of total government revenues, while OPEC countries
revenues total $600 billion to $700 billion a year.
This "carbon entanglement" not only is a threat to the global economy but is a primary reason it is
so difficult to move the world away from carbon, Gurría said.
"Stranded assets are now being talked about by major opinion makers like the OECD," said
Michael Lazarus, senior scientist at the Stockholm Environment Institute. Sovereign wealth funds,
governments and investors are "really not preparing to strand assets—they're doing the exact
Exxon Mobil spokesman Alan Jeffers referred questions about carbon risk to the disclosure within
the company's annual 10-K about greenhouse gas emissions.
When asked about how it related to stranded assets, Jeffers said, "Our risk factors are not specific
to the concept of stranded carbon assets, but every credible energy outlook indicates that fossil
fuels make up the majority of energy demand for the foreseeable future. ... Energy needs and
environmental needs have to balanced ... but there's no technology available today that will
replace oil, gas and coal."
European majors BP and Royal Dutch Shell have spoken publicly about performing carbon price
analysis on their operations. The general outlook in Exxon, Shell and BP's long-term global
energy forecasts is that the biggest result of the carbon challenge will be greater reliance on
Caldecott said the past five to ten years in the energy markets has shown that those betting on
their ability to predict the future of the energy market decades out may be the ones engaging in
In fact, Gurría addressed the status quo energy outlook in his speech.
"For heavily coal-dependent countries, a switch to shale gas can reduce the carbon intensity of
power generation [as in the USA]," he said. "This is an improvement from a climate perspective. ...
It will mean lower emissions, but not no emissions. The question then becomes: How do you
ensure that gas is a transitional step toward an eventual goal of zero emissions? If we invest too
much in dedicated pipelines and other infrastructure, the transition risks becoming a new and
ConocoPhillips declined to comment. Chevron and BP did not respond to requests for comment.
An investor can always make the case that global carbon legislation would never happen—just
look at the failure of the Kyoto Protocol, for example. Even experts agree, to an extent.
"This is the challenge of the whole carbon bubble rubric," Lazarus said. "You have to take the
threat seriously to start talking about stranded assets, and there are different extents to which
different institutions accept these concerns and price them in."
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Julie Gorte, senion vice president of sustainable investing at Pax World Management, said, "To
make assets stranded, you need to have a carbon price that is high enough, first for coal, second
for oil, and last for natural gas. Cap-and-trade or a carbon tax would do it, but it would need to be
global, and we're far from that—and Congress can't pass anything."
Experts say, though, that it's a mistake to think of stranded assets as applying only to carbon or as
hinging on legislation. For example, Caldecott said, declining costs for renewables will have more
impact over time than a global climate change agreement.
Gorte said that looking at how quickly the coal market has deteriorated as a result of the rise of
natural gas—a rise no one predicted a decade ago—is an example of how quickly markets can
change and assets become stranded.
The broad issue for investors is to think about all the companies and sectors that could be affected
by climate change, and the potential market mispricings range from agriculture to utilities.
There's now a tool to help investors determine how great their exposure to stranded assets may
New on the Bloomberg terminal is a stranded assets valuation calculator. It lets investors stress
test the cash flows and valuations of companies and portfolios based on carbon constraints, and
will help them understand where their portfolio is exposed to and affected by carbon. If emissions
have to fall by X percent by 2017, what is the impact on ExxonMobil, and how does it affect cash
flow and valuation?
And it's just the beginning, a first step is making stranded asset calculations a core metric in
financial analysis, said Caldecott, who worked closely with Bloomberg on the project.
"It won't just be about carbon," he said, but will look at other resource issues, including water.
Even if an investor does not believe that legislative change on a global basis is possible related to
carbon, stranded assets must be part of risk management.
Jonas Kron, senior vice president and director of shareholder advocacy at Trillium Asset
Management, said its energy analyst recently completed an exam of energy industry and tar sands
exposure as a way to pull the stranded assets concept into the firm's investment process.
"I want to be very clear that I haven't come here to vilify fossil fuels," Gurría told the OECD
meeting. "We don't need to get to zero tomorrow. Not even in 2050. ... But sometime in the second
half of the century we will need to arrive there. Carbon entanglement will not be easily undone."
As an investor, you might want to make sure it doesn't undo you.
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