The faulty valuation of fossil energy assets is an often-ignored threat to the stability of the global economy and the environment, former Vice President Al Gore said Tuesday during the Advanced Research Projects Agency – Energy (ARPA-E) summit. “We certainly have a problem with up to $22 trillion worth of stranded carbon assets for sure, and I think the way we measure value in our market system is deeply flawed,” Gore said.
The concept of stranded carbon assets has drawn a great deal of attention in recent years as it has become clear that in order reach the international goal of limiting global temperature rise to no more than 2 degrees Celsius a significant amount of currently known fossil energy reserves will have to remain unburned. Given that the resource cannot actually be utilized, it then follows that it’s not actually worth much of anything under the carbon bubble concept.
Gore compared the threat of the “carbon bubble” to the housing market crash from 2006 -2012. “These are proven reserves in the ground, and that value is based on an assumption even more absurd than the one under[lying] subprime mortgages, namely that all of those assets are going to be burned. They’re not. They can’t be, and not just because of the Paris Agreement or national laws, but Mother Nature is applying constraints,” Gore said.
The best way to address these stranded assets is with a carbon tax, Gore said. By taxing carbon, coal would then be priced in a way that would include externalities currently not considered, such as the environmental impact of its use. However, cap-and-trade appears to be the favored market-based system among governments, if not among economists.
“China’s going to adopt a cap-and-trade system next year. The European Union has finally scrubbed out the glitches and inefficiencies [of its program] for the most part. China’s likely to link up with the EU. That will be a big point for the global economy where cap-and-trade is concerned. The economists all prefer a carbon tax,” Gore said.
The Nobel Peace Prize recipient speculated that regardless of the U.S. government’s failure to enact a cap-and-trade system nationally, states will eventually choose that path. “It won’t be that long before North America has a continental cap-and-trade system, even if the U.S. national government doesn’t. I think that the states and provinces are going to link up,” he said.
Until the widespread adoption of a market-based carbon plan is realized, Gore suggested that companies internalize the costs of carbon through the use of a shadow price on carbon. “Do you have a shadow price on CO2, if you don’t, why don’t you? The world is moving in that direction, but even more importantly, CO2 emissions are a marker of inefficiency. When you develop systems and teams to really pay attention to that, it’s almost like putting on a magic pair of goggles that allow you to see waste and inefficiency that would otherwise be invisible to you,” he said.
Furthermore, Gore said, U.S. fossil energy subsidies are out of line with climate change efforts. “We still subsidize carbon-based fuels for example … 40 times [more] than the meager subsidies for renewable energy and that’s a conservative estimate from the International Energy Agency,” he said.
“We can’t keep using [the atmosphere] as an open sewer. It’s crazy. That is also a subsidy that needs to be illuminated. Other companies have to deal with their own waste disposal. Why is it different if it’s gaseous waste that destroys the future? We say to them, ‘oh use the sky, no charge, no problem, just spew it out there as much as you want.’ That’s crazy, and we need to change that,” Gore exclaimed.
