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Energy

Oil, coal and gas soon worthless?

Bankers and investors are questioning whether it's worthwhile to invest in fossil fuels, especially in light of new climate agreements that could leave the materials in the ground forever.

Governor of the Bank of England Mark Carney's letter to the Environmental Audit Committee of the British parliament in late October 2014 fueled the debate over combustion of fossil fuels. He argued that to manage global warming, and avert climate disaster, such energy reserves should stay in the ground.

Joan Walley, who heads the Environmental Audit Committee, told the Financial Times that investors should closely watch for what effects climate treaties could have on fossil fuel reserves.

"Policymakers and now central banks are waking up to the fact that much of the world's oil, coal and gas reserves will have to remain in the ground unless carbon capture and storage technologies can be developed more rapidly," Walley said.

Increasing momentum to divest

Exactly that seems to be happening, as ever more financial actors contemplate divesting from fossil fuels.

World Bank President Jim Yong Kim earlier this year encouraged governments and business to consider withdrawing funding from oil, gas and coal companies. And the World Bank in November announced it will only fund coal projects in developing countries in extreme cases.

"Climate change is threatening assets," said Georg Kell, director of UN Global Compact in an interview with DW. And investors are beginning to grasp this, he added.

A further example is German energy company E.ON, which recently decided to exclusively develop renewable energy sources.

Carbon Tracker, a London-based non-governmental organization founded by financial analysts, hailed the Bank of England move as a benchmark in clarifying the financial risks of fossil fuel investment for other banks and financial institutions. The group said the step as possibly leading to an important rethink.

'Unrealistic scenario'

Esther Chrischilles of the Cologne Institute for Economic Research said she would advise energy companies to consider regulatory risks and attempt to position themselves as climate neutral.

"I would, however, consider the risk of fossil fuels having to stay in the ground due to climate resolutions to be very manageable in the near future," Chrischilles continued.

Climate treaties are one thing, while climate resolutions are another, Chrischilles pointed out. She considers the former economically and politically unrealistic at the moment.

"In addition, the damage that would result from a loss of trust in the consistency of economic and political decisions would be a great deal higher," she added.

Fossil fuel companies are far from worn down, she thinks - there's still great growth potential in emerging or developing economies. "It's exactly there that emissions reductions would be difficult to enforce," Chrischilles said.

In that context, it would be unwise to count on a radical change of course in the near future, she concluded.

Topic in Lima

Fossil assets were indeed a topic at the Lima climate discussions. Christiana Figueres, head of the UN climate agency, told Reuters that the long-term goal of negotiations is to eliminate all greenhouse gas emissions by 2100.

In order to reach this goal, fossil fuel assets would have to stay in the ground. "We just can't afford to burn them," Figueres said.

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