Oil giant Exxon Mobil has promised to reveal how much of its fossil fuel reserves could become worthless if governments agree to cut greenhouse gas emissions. It is the first major fossil fuel company to declare the size of its exposure to the so-called carbon bubble – the over-valuation of fossil fuel companies that could result if their assets are left unused.
To save ourselves from the worst impacts of global warming, we have to leave fossil fuels in the ground instead of burning them. But that is potentially bad news for companies that own vast reserves of oil, gas and coal. These reserves could become worthless if countries shift to low-carbon economies. In turn, that could mean shares in the companies would plummet in value.
Last week, following sustained pressure from shareholder groups, Exxon Mobil, the largest oil company in the US, promised to reveal how much of its oil, gas and coal reserves could end up locked underground forever as part of plans to halt global warming.
The shareholder groups are now calling for other major oil producers to follow suit. "This is the first real step in addressing carbon asset risk, making investors aware this is real, and obliging other companies to respond in the same way," says Natasha Lamb of Arjuna Capital in Durham, North Carolina. Arjuna used its shareholding in Exxon to push for disclosure.
Lamb says Exxon's decision will make an economic meltdown less, not more, likely. "I don't think increased transparency and disclosure ever leads to a crash," she says. "It's hiding risk that leads to a crash."
"The move towards more transparency would be hugely beneficial, both for Exxon and for climate policy," agrees Aled Jones of Anglia Ruskin University in Cambridge, UK.
Last year, the Carbon Tracker Initiative estimated the scale of the problem. Restricting global warming to 2 °C over pre-industrial levels – the target agreed by governments – would mean that no more than 570 gigatonnes of carbon dioxide can ever be released. But established reserves hold five times this figure – around 2800 gigatonnes – so 80 per cent of reserves may be useless. "It's important investors include this in their analysis, and the earlier that's done, the better," says Lamb.
Some politicians are also concerned. Earlier this month, the UK government's Environmental Audit Committee published a report highlighting the risk and calling for more transparency on "stranded assets".
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