Carbon Tracker Initiative: Reframing the climate change debate

Carbon Tracker Initiative research has captured the interconnection between capital markets and climate change, bridging the divide between the two.

Shortlisted in the 2degrees Champions Awards 2015

The background

The Carbon Tracker Initiative (CTI) is a non profit financial think tank set up in 2011 to investigate what levels of future carbon emissions were being financed by the world’s fossil fuel giants. By comparing the stocks of carbon in the form of coal, oil and gas sitting in the ground with carbon budgets which equate to degrees of warming, we have demonstrated the huge overhang of carbon in our energy system if we want to stay below 2˚ C – what we refer to as unburnable carbon.

CTI coined and mainstreamed the innovative concepts of carbon bubble and stranded assets, that for the first time turned climate change into a material issue for the financial community. This approach has proved valuable in being able to link the worlds of energy and finance. Our goal is to enable a climate secure global energy market by aligning the capital markets with climate reality by correctly factoring in climate risk.

What did we do

The Carbon Supply Cost Curves analyses we produced in 2014 took our existing work to a new level with the goal of empowering investors to engage with fossil fuel companies on their own turf and using their own language to challenge their unsustainable business-as-usual models. The research ultimately empower analysts, investors and financial regulators to scrutinise investments and divert risky capital back to shareholders or to push companies to diversify portfolios away from fossil fuels.

This year CTI also launched of a new sustainable finance tool: Capex Tracker. It monitors carbon production by tracking capex on fossil fuel production. It is a lead indicator of global warming grounded in financial analysis.

Capex Tracker is designed to show the path towards “carbon disarmament”. In the same way global disarmament practices required tracking nuclear weapons arsenals, global decarbonisation efforts need to identify capital flows channelled into developing high risk fossil fuel reserves.

The result

CTI research prompted responses on a wide variety of fronts, reframing the climate change debate. Companies, investors and policy-makers are as a result openly debating how global warming can impact the financial system.

Oil majors publicly responded to our research findings. For example, CTI reports provoked extraordinary reactions from Shell and ExxonMobil.

On the investor side, our core analysis spawned the divestment movement and engagement initiatives that have spread worldwide. For example, the Norway's Sovereign Wealth fund – one of the biggest pension funds globally – sold out of 114 fossil fuel companies since 2012.

Policy-makers are putting stranded assets on their agenda.

President Barack Obama, alluding to unburnable carbon said: “We’re not going to be able to burn it all”.

The Bank of England announced it will deepen its inquiry into unburnable carbon.

Christiana Figueres, Executive Secretary of UNFCCC, declared that the “carbon bubble is now a reality”.

The personal pitch

The fossil fuel industry is facing a more demand-constrained world, where climate and environmental policies are playing a role. In this context capital could easily be wasted developing new high cost projects, which are frequently the most carbon intensive.

Financial flows can tell us in advance where we are going.

CTI research has captured the interconnection between capital markets and climate change, bridging the divide between the two.

Our research is contributing to speed up the transition to a low carbon energy future. However, unless we have a financial system that is able to address climate risk, this is unlikely to happen. It is clear that the future will not repeat the past, due to both the changing climate, and a changing energy system. We therefore need a financial system that can deal with sectors not just repeating historical performance.

Suppliers, contractors and solutions providers used

CTI’s success in developing clear-cut, innovative analytical research has been made possible thanks to the support of a number of strategic partners and advisors.

Energy Transition Advisor is CTI’s strategic research partner. ETA is an independent research group led by Mark Fulton. Mark was head of research at DB Climate Change Advisors at Deutsche Bank from 2007 to 2012, where he produced thought leadership papers for investors on climate, cleaner energy and sustainability topics and advised investment teams in asset management.

Paul Spedding has been CTI’s independent research advisor since 2013. Paul is ex Global Co-Head of Oil And Gas Research (2005 to 2013).

Links to relevant supporting materials

What is the unburnable Carbon?

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Oil report Launch - Christiana Figueres, UNFCCC keynote speech:

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Anthony Hobley, CTI CEO, presents at UN SG Summit in NYC during Climate Week 2014:

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Interactive Map which tracks Investor Responses to Stranded Asset Risk

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This article forms Carbon Tracker Initiative's submission into the Innovation of the Year category of the 2degrees Champions Awards 2015. It was written and submitted by Margherita Gagliardi, Communications Officer of Carbon Tracker Initiative.

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