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Fossil fuels are sub-prime assets, Bank of England governor warned

Damian Carrington, The Guardian
The huge reserves of coal, oil and gas held by companies listed in the City of London are “sub-prime” assets posing a systemic risk to economic stability, a high-profile coalition of investors, politicians and scientists has warned Bank of England’s governor, Sir Mervyn King.

In an open letter on Thursday, they tell King that the global drive to reduce carbon emissions could mean billions of pounds of fossil fuel reserves will rapidly lose value and cause a “major problem” for institutional investors and pension funds.

At the most recent UN climate change summit in December, 194 of the world’s nations agreed to enact legally binding curbs on greenhouse gas emissions within three years to limit global warming to 2C. But meeting this limit would mean just 20% of existing fossil fuel reserves could be burned, according to recent research.

“These high-carbon assets pose significant strategic challenges for the future prosperity of Britain that just can’t be ignored,” said investment manager James Cameron, who is a member of the prime minister’s business advisory group. “Investors continue to pour cash into unsustainable assets without understanding the risks associated with these investments, such as climate change, local pollution, fossil fuel price volatility, political risk and catastrophes such as Deepwater Horizon.”
(19 January 2012)
Read the letter
The Carbon Tracker Initiative website

The real beneficiaries of energy subsidies

David Sirota, Salon
Listen to the typical conservative rhetoric about energy being thrown around on talk radio or in Republican presidential debates, and you’re likely to hear that our government primarily uses its regulatory and financial power to create a destructive green energy boondoggle — one that enriches a few politically connected Solyndra executives, appeases a bunch of wild-eyed tree huggers, but hides the fact that renewables supposedly can’t stand on their own in the private sector…

But the reality, of course, is something wholly different. Indeed, this mythology is a perfect example of Orwellian Newspeak in which the reverse of the rhetoric is true. As recent news highlights, the government is doing exactly the opposite of what conservatives say: It is aggressively favoring the fossil fuel industry in ways that give that industry a special economic advantage over clean energy.

In 2010, Bloomberg News released a report showing that global governmental support “for fossil fuels dwarf support given to renewable energy sources.” The numbers led one financial expert to note that while “mainstream investors worry that renewable energy only works with direct government support,” the truth is that “the global direct subsidy for fossil fuels is around ten times the subsidy for renewables.”…
(18 January 2012)

Podcast: How Equity and Economics Will Drive Climate and Energy Stories in 2012

Stephen Lacey, Climate Progress
In 2011, two deeply intertwined themes dominated international climate and energy stories: equity and the intersection of the economy and the environment.

“These two themes – equity and economy versus environment – will continue to shape stories in 2012,” says Manish Bapna, acting president of the World Resources Institute, in an interview on the Climate Progress podcast.

The Arab Spring, the Occupy movement, and protests in China all forced leaders and journalists to talk about issues of equity. And those movements all influenced climate and energy stories in some way.

In this podcast, we speak with WRI’s Bapna about how concerns over equity and economic growth will influence a wide range of global issues, including climate policy in China, world-wide investment in renewable energy, and the conversation moving from the Durban climate talks and into the Rio +20 conference on sustainable development.

Link to podcast
(25 January 2012)

Companies and tax authorities can all benefit if they work together

Simon Henry Chief – Financial officer at Royal Dutch Shell, The Daily Telegraph
The world has entered a prolonged era of macro-economic volatility. Against this backdrop, predictable and transparent tax regimes can be a welcome source of stability, particularly in the energy industry where investment lifecycles span decades.

But there’s another reason why tax is currently such an important issue for Shell.

The global economic crisis is forcing a re-evaluation of more than just the financial sector. There’s a sense that capitalism itself has reached a turning point, and that something is broken in the contract between government, society and business.

There’s a highly charged debate about whether international companies like Shell avoid paying their fair share of tax. While the business sector must strive to preserve and strengthen public confidence in its activities, the tax debate can easily be coloured by misunderstanding.

In the energy industry, determining a ‘fair’ tax rate is a difficult balancing act that must take account of the level of investment and risk involved in developing an oil or gas field.

A high rate might be appropriate in a Middle Eastern country holding substantial and easily accessible resources, but it’s different in, say, the North Sea, where oil and gas fields are smaller, more technically challenging and less profitable to develop. A very high tax rate there might make these resources commercially unviable.
(19 January 2012)
A public appeal from big oil! This is a hot issue in the UK following critcism of the Tax Authorities by the Commons Public Accounts Committee over deals with Goldman Sachs and others.-SO