‘Carbon bubble’ threatens to derail global economy, wiping out trillions

4 Jun 2018

Image: Lance Sagar/Shutterstock

The expected dramatic shift from fossil fuels to renewable energies has been heralded as a much-needed change, but there is a major catch that many are avoiding.

For nearly two centuries we’ve pumped millions of tonnes of CO2 into our planet’s atmosphere, damaging it so much that it is now visibly harming our environment in catastrophic ways.

As a result, scientists and governments have pumped billions into the research and development of renewable energy technologies to quickly transition us to a cleaner world, seemingly for the greater good.

But a paper published by an international team has warned that such a drastic shift from fossil fuels to renewables could see the bursting of a ‘carbon bubble’ based on long-term investments that would have major ramifications on the world economy.

These findings come from researchers from Cambridge University, Radboud University, the Open University, Macau University and Cambridge Econometrics, and were published in the journal Nature Climate Change.

Worse than 2008 crash

The research team estimated that the equivalent of between $1trn and $4trn could be wiped out in fossil fuel assets alone, completely shadowing the $0.25trn loss that triggered the economic crash of 2008.

The end result of such a scenario would see a number of clear economic winners and losers emerge.

For example, countries and regions that are heavily reliant on the importing of fossil fuels – such as the EU, Japan and China – would thrive knowing that a focus of investment in renewable energy technology could help boost GDP. But, for the world’s biggest fossil fuel exporters – such as the US, Canada and Saudi Arabia – their industries would collapse if they continue to neglect renewable energy in favour of carbon-intensive economies.

Nations no longer get a ‘free ride’

The study repeatedly ran simulations to gauge the outcomes of numerous combinations of global economic and environmental change.

This marks the first time that the evolution of low-carbon technologies has been mapped from historical data and incorporated into ‘integrated assessment modelling’.

“Individual nations cannot avoid the situation by ignoring the Paris Agreement or burying their heads in coal and tar sands,” said Prof Jorge Viñuales of the University of Cambridge and co-author of the study.

“For too long, global climate policy has been seen as a prisoner’s dilemma game, where some nations can do nothing and get a ‘free ride’ on the efforts of others. Our results show this is no longer the case.”

In this new world, it would seem China – which has already begun investing substantially in renewable energy technologies – stands to gain the most and could establish itself as the clear global power, ahead of its US and Russian rivals.

Study co-author Hector Pollitt from Cambridge Econometric sadded: “If we are to defuse this time-bomb in the global economy, we need to move promptly but cautiously.

“The carbon bubble must be deflated before it becomes too big, but progress must also be carefully managed.”

Colm Gorey was a senior journalist with Silicon Republic