Up to $2 trillion in petroleum and coal projects will not be needed if the world takes action to limit warming of the planet to 2 degrees Celsius, according to a report released this week ahead of a global climate summit in Paris.
The report adds to a string of studies warning investors that measures to curb carbon emissions will hit earnings at coal, oil and gas companies as the world shifts to cleaner energy.
Europe’s largest insurer, Allianz SE, this week joined a growing number of institutional investors like California’s pension funds and Norway’s sovereign wealth fund, to sell off coal investments.
Analyzing industry databases, environmental think tank Carbon Tracker Initiative (CTI) found the three biggest losers would be Mexico’s Petroleos Mexicanos (PEMEX) [PEMX.UL], with $77 billion in unneeded projects, Royal Dutch Shell, with nearly the same, and ExxonMobil with $73 billion in potentially stranded projects.
Petroleum companies are worse off than coal companies as their projects are typically much more expensive, it said.
Shell and ExxonMobil said they could not comment on the report as they had not seen it, but both said the world will need oil and gas to help meet growing energy demand.
“All of ExxonMobil’s current hydrocarbon reserves will be needed, along with substantial future industry investments,” spokesman Alan Jeffers said.
Shell, critical of previous Carbon Tracker reports, said investment is needed just to replace natural decline in existing oil and gas fields. Pemex was not immediately available for comment.
From the point of view of cutting carbon emissions, coal producers are much more vulnerable as the carbon saved by not developing their projects is much greater, Carbon Tracker said.
However, from an investor viewpoint, oil companies faced a higher risk given the greater cost of their projects, said Mark Fulton, a former investment banker who worked with CTI on the research.
He pinpointed two “carbon basins” – oil sands in Canada and the Galilee Basin in Australia, where two Indian conglomerates are looking to dig mines – as regions whose assets will not be needed.
In a separate report released on Monday, another non-profit think tank, CDP, ranked Glencore Plc as the worst prepared for a low carbon economy among 11 major listed miners, based on measures including energy efficiency, resilience to water shortages, exposure to coal and carbon price exposure.
Glencore said it was disappointed with the findings and said its climate change scores from CDP had improved over a number of years, beating the industry average in an earlier CDP report.