Investors in the gas, oil and coal sectors should start questioning companies about their exploration budgets as new research pinpoints which fossil fuel reserves must stay in the ground to meet international carbon emission targets, according to researchers from the UCL Institute for Sustainable Resources (UCLISR).
New research by the institute, published in the journal Nature, shows that 80 percent of existing coal reserves, a third of oil reserves and half of all gas reserves must stay in the ground if the world is to limit global warming to less than 2 degrees Celsius.
The research also pinpoints geographically the reserves that must stay underground, helping investors to determine which companies may be accounting for reserves they should not use. Almost all of the coal in Russia, the US and China should remain unused along with 260 billion barrels of oil in the Middle East and 60 percent of its gas reserves.
The scientists say they developed an innovative method of estimating the location, quality and quantity of existing fossil fuel reserves for the study and used an ‘integrated assessment model’ to figure out which of the reserves could be burned by the year 2050 while limiting global warming to 2 degrees Celsius.
Professor Paul Ekins, co-author of the study and director of the UCLISR, says companies spent more than $670 bn last year in exploration for new fossil fuel resources but the result just adds to the stock of fossil fuels the companies should already avoid exploiting. Development of oil in the Arctic and other hard-to-reach places, which generally have fossil fuels of a poorer quality, should be of particular concern to investors, he adds.
‘Investors in these companies should also question spending such budgets,’ Ekins writes in his report. ‘The greater global attention to climate policy means fossil fuel companies are becoming increasingly risky for investors in terms of the delivery of long-term returns. I would expect prudent investors in energy to shift increasingly toward low-carbon energy sources.’
