Investors warn of ‘carbon bubble’ as Shell predicts climate regulation will hit profits?

Carbon bubble, it am all de rage. The latest is from Blue and Green Tomorrow. Who say:

Oil giant Royal Dutch Shell has warned that its profits are likely to be affected by international efforts to curb climate change, as campaigners say investors should steer clear of fossil fuel stocks. In its annual and strategic report for 2013, Shell says that increasing concern over climate change will lead to new regulations that will hit the company’s production profitability and delay some of its projects.

Well if even Shell are saying that, it must be true, no? It would be if they were, but they aren't quite saying that, so it isn't. This isn't new; we had it last year and Brian was pushing it, weakly a few weeks ago.

So first off, if this was actually true then "investors" would not need to be listening to the advice of "campaigners" because the investors would know already. But I said that last time, its the bleedin' obvious, if you didn't believe me then you won't now. Lets instead read what Shell have to say. Here's the report. Its quite big, 50-odd pages, and the mentions of Climate are few; its not a major issue for them. The first occurs in:


I'd outline the word "climate change" for you but (a) it would be tedious and (b) doubtless having to search it out is instructive. You take the point, I hope: Climate Change is but one of a host of risks that they are legally obliged to list and consider. As yet, there's no consideration of the seriousness. The first detailed mention is:


Does this justify the "Shell predicts climate regulation will hit profits" of the headline? No. Its more vague and more nuanced, and doesn't carry the immeadiate investment timescale. Later on, there's a whoole page's worth (p 50 / p 51) but it reads much the same to me. There's a nod to CCS, with a ~2050 timescale, sourced to IEA.


* He's a bit late to the party, but Timmy chimes in with much the same, albeit from Exxon.
* Schumpeter: A green light: Companies are starting to open up about their environmental risks. They need to do more, from the Economist.

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Weasel, you really do need to read Rabett Run more attentively. Shell blew its wad on ill judged exploration including in Alaska and is paying for it now

By Eli Rabett (not verified) on 24 Mar 2014 #permalink

Wishful thinking - Elephant field hunting by the forward looking language averse majors will continue in unfrozen climes , and an Arctic thaw would work wonders for the value of Shell's pressure ridge afflicted Alaskan lease portfolio.

Shell's stock trades in US markets, where the language about forward-looking statements is an abracadabra that makes shareholder lawsuits disappear. If they didn't say anything about the risk that legislation to mitigate climate change would reduce their profit, and such legislation were enacted and did reduce their profit, they could be sued over that. But with that language in the report, they can get any such lawsuit dismissed, and the cost of including the language in the report is much less than paying lawyers to defend (or settle) a lawsuit that actually goes to trial.

As the language of the report shows, there are many other things Shell is worried about that could reduce their profits, and climate change legislation is number 10 of 12 things itemized on their list.

By Eric Lund (not verified) on 25 Mar 2014 #permalink

Doesn't the whole logic of a carbon bubble assume that Shell isn't serious?

That is Shell and "investors" were saying climate regulation would limit their future operations, then their wouldn't be a bubble.

Meanwhile, in parts of America, the Tea Party is helping block attacks on solar from utility companies.

[I'm not entirely sure what the logic is supposed to be. But if your version is right, then they definitely aren't allowed to use Shell as a source for ZOMG, which is what they're doing -W]

By blueshift (not verified) on 25 Mar 2014 #permalink

There is no threat of climate regulation. There is not on scintilla of evidence that governments are going to do a thing about reducing fossil fuel use.

[You're obviously wrong about that. Kyoto, and/or ETS, are evidence -W]

What climate campaigners seem to think counts (like putting up solar panels and wind turbines) is nothing less than a homeopathic treatment (it isn't free, and it's as effective as a placebo).

"But if your version is right, then they definitely aren't allowed to use Shell as a source for ZOMG, which is what they're doing -W"

It's a stretch, but you could say it's the first sign of the bubble popping.

As to my understanding of what the bubble is:

-Market valuation of various companies assume we burn enough fossil fuels to get us beyond 2C.

-This assumes no strong governmental action.

-These assumptions are mutually reinforcing. Lack of government action gives the companies money to ensure lack of action.

-Potentially, the bubble bursts. The companies simultaneously lose political clout, and market capitalization. Which quickly creates a feedback.

Essentially, it assumes that the market is fundamentally misreading the likelihood of future government action.

By blueshift (not verified) on 25 Mar 2014 #permalink

@Eric Lund #3 - Nail on the head. It's boiler plate U.S. public stock statements either as a prospectus or following any estimate. It takes away lawsuits that prey on what the lawyers say the company knew or should have known when they gave guidance to investors. "Known knowns", "known unknowns" are pretty standard and broadly covered. Lawyers get rich with class action lawsuits. It would surprise me if this language were missing from any oil drilling, machinery, or transportation of hydrocarbons.

By Tim Beatty (not verified) on 25 Mar 2014 #permalink

Just googled "oil drilling equipment companies" and NOV came up. This is from their annual report on "risks." Don't see how this is any different than the "carbon bubble" that people are reading into Shell.

We are dependent upon the level of activity in the oil and gas industry, which is volatile.

The oil and gas industry historically has experienced significant volatility. Demand for our services and products depends primarily upon the number of oil rigs in operation, the number of oil and gas wells being drilled, the depth and drilling conditions of these wells, the volume of production, the number of well completions, capital expenditures of other oilfield service companies and the level of workover activity. Drilling and workover activity can fluctuate significantly in a short period of time, particularly in the United States and Canada. The willingness of oil and gas operators to make capital expenditures to explore for and produce oil and natural gas and the willingness of oilfield service companies to invest in capital equipment will continue to be influenced by numerous factors over which we have no control, including:

* the ability of the members of the Organization of Petroleum Exporting Countries, or OPEC, to maintain price stability through voluntary production limits, the level of production by non-OPEC countries and worldwide demand for oil and gas;

* level of production from known reserves;
* cost of exploring for and producing oil and gas;
* level of drilling activity and drilling rig dayrates;
* worldwide economic activity;
* national government political requirements;
* development of alternate energy sources; and
* environmental regulations.

By Tim Beatty (not verified) on 25 Mar 2014 #permalink

Desperately trying to keep up with the latest trends, I've got a piece at SkS on the carbon bubble today.

In brief: I don't think the carbon bubble is as big or imminent a threat to industry as some claim, but, on the other hand, it might be. As Groucho almost said, that's my conclusion and if you don't like it, I have others.

[I think that stuff like has focussed the attention of the big, long-term investors like pension funds, on the sustainability of their portfolios isn't really supported by the rest of the piece; but otherwise it seems reasonable -W]

By Andy Skuce (not verified) on 26 Mar 2014 #permalink

[I think that stuff like has focussed the attention of the big, long-term investors like pension funds, on the sustainability of their portfolios isn't really supported by the rest of the piece; but otherwise it seems reasonable -W]

Fair enough, but it was mentioned in the video presentation and I should have perhaps added a link or two to back that statement up. Like this one.

[Thanks for the link. I don't understand that page, though. they provide a link to who wrote the letter. They provide a link to who the letter was sent to. But they don't provide a copy of the letter itself, unless I've missed it -W]

By Andy Skuce (not verified) on 26 Mar 2014 #permalink

Weakly, William?

Eric and Tim are right - this disclaimer is legal insurance, but I wouldn't dismiss its importance. First, it means they feel there's some level of threat or else they wouldn't have added it to the list of top 12 reasons not to buy their stock. Second, it's no guarantee they won't get sued when the time comes for not doing it soon enough or clearly enough.

This is part of the shareholder movement which tracks parallel to the divestment movement that I've supported. One idea they have is that fossil fuel companies shouldn't do any more exploration to add likely-expensive reserves to the existing bubble - instead they should draw down existing reserves, starting with their cheapest reserves, and either pay out the profits in dividends or invest in non-bubble businesses. Failure to do this exposes the companies to litigation, and I think it's a reasonable strategy.

[If you're a shareholder, and that's what you want, then yes. But then don't claim this is Shell's idea -W]

By Brian Schmidt (not verified) on 28 Mar 2014 #permalink

Shell isn't a person, and doesn't have a singular idea. There is no such thing as "Shell's idea". Shell Oil company is a group of people, organized as a corporation. As such, it will not just "change its mind", as it doesn't have a mind, not being a person. In spite of what the US Supreme Court said in Citizen's United.
Organizations usually change direction slowly. As such, such a formal recognition of the risk of climate change is a useful first step. Not a big step, to be sure, but a step in the right direction.

By Phil Hays (not verified) on 30 Mar 2014 #permalink

Phil, yes but, increasingly companies reflect the views of their CEOs. Capture the mountain and you have their hearts and minds, at least until the next quarterly statement.

By Eli Rabett (not verified) on 30 Mar 2014 #permalink

Yes, Eli, some CEOs do try very hard to control every aspect of their companies. I don't think this is necessary bad, or for that matter all that recent. Andrew Carnegie, for example. But the CEO will find that they need to listen to the experts they hire, on matters that the CEO can't be an expert on. Legal, for one. Various technical matters. Taxes. Don't forget that listening is a skill required for success. Failure to listen can have serious consequences for the company, or for the CEO personally. In a famous recent case with the more controlling modern CEO I'm aware of, Oncology. The CEO isn't a mountain, and for success needs to be as much a follower as a leader, if not more.
Climate risk isn't simple, especially if viewed through the lens of what we are actually going to do, not through the lens what the ideal course of action would be. Or in other words, the political risk from climate risk, not the actual climate risk.
What sort of changes might people (individually or collectively) decide to make now, or soon, or in the time scale of a given investment in oil exploration? An interesting question, to be sure.

By Phil Hays (not verified) on 02 Apr 2014 #permalink

Look at this handy graphic, released on April fools day !

It's for the United States, but I doubt that things are hugely dissimilar in most other industrialized countries.

Climate policy: can you see it's effect in the United States? (It's somewhere in the thinnest lines ... ley lines?). If Climate is to stabilized, those thin lines have to become the thickest.

Would it be likely that massive use of petroleum (mostly for transport) is going to rapidly diminish in the United States over the next 40 years? What about petroleum use in other countries that seek to develop to standard of living approaching that of Americans: do you think it will decrease?

Shell is laughing. I'm not: current climate policy, on the whole, can only be considered as a death wish. And having conversations about "renewables" "divestment" and "carbon bubbles" is ignoring reality.

You're right to ask (and I expect that's why it was posted at CCNF for scientists to critique). It comes from economicistic consultants not academic economists: who say " they are just trying to make money for clients by identifying long term trends"

In other news, there's this interview:…
"Anthony Patt is a lead author on the IPCC report, concentrating on the question of risk and uncertainty in making sound climate policy. He is a professor of environmental policy at ETH Zurich, the Swiss Federal Institute of Technology. He is an expert on how investors in the energy sector deal with risk, and how different government policies can stimulate investment by reducing risk."
==== excerpt from the interview follows =====
"... it won't cost the world. If you express the costs of mitigating climate change in billions of dollars, it sounds a huge number over the next century, but when you express that number in comparison to the economic growth that we anticipate to happen anyway, it's really pretty small. The report projects economic--the world economy growing by something like three to ten times over the remainder of this century, so 300 to 1,000 percent. Then, actually, the investments that it would take to mitigate climate change would maybe reduce that by maybe 2 or 3 percent. So instead of reaching at a certain level of wealth 50 years from now, we get there maybe two or three weeks later. It's not a huge amount of money."
====== end quote ======
So, that part of the IPCC is assuming the world economy can grow 3x to 10x in what's left of this century.

I get it. I pay you to ameliorate my ancestors' CO2, you pay me to ameliorate your ancestors' CO2, and we both pay China and India to ameliorate the CO2 for the stuff we buy from them, and the economy balloons?

By Hank Roberts (not verified) on 16 Apr 2014 #permalink

I was just reading this from The Economist and thought it deserved a mention - here as good as anywhere:…

"Companies are starting to open up about their environmental risks. They need to do more"

"A study published by Harvard Business School in 2011 looked at 180 firms over 18 years and found that those which paid the most attention to environmental matters also did best when measured by share prices and earnings. This does not prove that greenery causes good performance—more likely, well-run firms pay attention to both—but at least they are not in conflict.

The implications are that there ought to be generally accepted accounting principles for the environment, and that policymakers should pay more attention to efforts under way to create them. The basic framework would not be hard to set: companies should publish assessments of climate risks and opportunities (Exxon is doing that); disclose their greenhouse-gas emissions; and explain how they are seeking to cut them. Investors would benefit; so might the planet."