Preparing for a Low Carbon Economy

Danielle Fugere

Danielle Fugere
President & Chief Counsel, As You Sow

Shareholders have filed carbon asset risk resolutions with 10 oil, gas, coal, and utility companies this year seeking information on whether these companies are prepared to financially succeed in an increasingly carbon constrained world.

In the 2012 World Energy Outlook, the International Energy Agency and Carbon Tracker noted that no more than one-third of proven fossil fuel reserves can be burned prior to 2050 if the world is to achieve the 2 degree Celsius goal beyond which global warming will have dire ramifications. If laws are adjusted to recognize this limitation, the vast majority of fossil fuel companies will be left with “stranded assets” in the form of unburnable reserves and underused infrastructure. The majority of such companies will then be overvalued, presenting the risk of a worldwide “carbon bubble.”

In addition to this risk, recent reports, including a March 2013 report by Citigroup, predict that demand for fossil fuels may plateau within the decade due to factors such as increasing worldwide fuel efficiency, fuel switching, increasing competition from renewables, and environmental regulations.

Against this backdrop of lower demand and, thus, reduced prices, Goldman Sachs and other analysts have raised concerns about the rising costs and declining return on equity among major oil producers, particularly for projects that have long payback horizons or high costs, such as certain non-conventional fuels.

These concerns have been noted by investors. In September of 2013, in an effort coordinated by CERES, shareholders with nearly $3 trillion in assets wrote to 45 of the world’s largest oil and gas, coal, and electric utility companies asking the companies whether and how they were planning for the risks associated with a low carbon future and how these scenarios will impact capital expenditures and current assets.

Last year, As You Sow’s resolution at CONSOL Energy focused on the potential for an economy-wide carbon bubble if global governments were to act to limit global warming to 2 degrees Celsius. This year, we are asking companies not only how they would be equipped to deal with such a scenario, but also how decreased demand for fossil fuels would affect the companies and their investment decisions. This is a moment in time when leading fossil fuel companies can make a decision to end or reduce exploration and development of high cost, high risk reserves and begin a shift to participate in and profit from a clean energy future.

Download Proxy Preview 2014 to find more carbon bubble shareholder resolutions.