Abby L. Harvey
GHG Monitor
9/4/2015
Meeting the international goal of limiting global temperature rise to 2-degrees Celsius could result in $100 trillion in stranded assets in the form of unburnable fossil fuels, unless carbon capture and storage is adopted at a large-scale, according to a new report released by Citigroup last week. “The one potential game changer for the coal industry comes in the form of Carbon Capture and Storage (CCS); while expensive now, if this can be made economically viable, it could carbon-enable huge potential resources. However, the industry is, in our opinion, in a something of an existential race to develop CCS within its survivability timeframe,” the report says.
The concept of stranded assets has gained steam as it has become clear that the world’s resources of fossil fuels contain far higher emissions than allowable in a 2-degree scenario. “Switching to a low carbon energy future means that significant fossil fuels that would otherwise have been burnt will be left underground. The development of the so called ‘carbon budget’ has led to the concepts of ‘unburnable carbon’ and associated ‘stranded assets,’” according to the report.
While the development of CCS is hailed as a potential “blue sky” scenario in the report, Citigroup remains unconvinced that the technology will mature fast enough to be the savior of the coal industry.
More than 80 percent of the world’s remaining coal reserves would have to be left unburned in a 2-degree scenario, the report says, and CCS is progressing too slowly to have a significant impact. “We continue to have reservations about the risk-reward equation for CCS. On the positive side, it represents a potentially enormous game-changer for energy markets; with almost 3000 years-worth of potential coal resources (at current usage rates) if CCS could be commercialized, then in many ways all other bets would be off. … Conversely, we harbor reservations regarding the large scale of investment required and long payback periods, which potentially make projects vulnerable if alternative solutions such as renewables, storage or hypothetically algae, become cheaper and more widely adopted in the meantime,” according to the report.
Cost of Inaction Greater Long-term
The report also investigates and compares the potential costs of a future where no action is taken to address climate change and a future where action is taken. “What is perhaps most surprising is that looking at the potential total spend on energy over the next quarter century, on an undiscounted basis the cost of following a low carbon route at $190.2 trillion is actually cheaper than our ‘Inaction’ scenario at $192 trillion. This … is due to the rapidly falling costs of renewables, which combined with lower fuel usage from energy efficiency investments actually result in significantly lower long term fuel bill. Yes, we have to invest more in the early years, but we potentially save later, not to mention the liabilities of climate change that we potentially avoid,” according to the report.
