Our first report, in 2011, showed that based on current understanding of an allowable carbon budget to keep below two degrees of global warming, there is more fossil fuel listed on the world’s capital markets than can be burned. Two degrees is a widely accepted danger threshold for global warming, and many governments have already started taking action. In our first report on unburnable carbon, we quantified for the first time how bad the overshoot is, company by company, and stock exchange by stock exchange. We showed that nowhere across the financial chain do players in the capital markets recognise, much less quantify, the possibility that governments will do what they say they intend to do on emissions, or some fraction of it. We noted how dysfunctional this is, and sketched what the players across the financial chain would have to do in order to deflate the growing carbon bubble, not least the regulators.

In this second report we dig deeper. In so doing we are particularly pleased to partner with the Grantham Institute and Lord Stern, a leading authority on the economics of climate change. Carbon Tracker’s work is now used by banks such as HSBC and Citigroup and the rating agency Standard & Poor’s to help focus their thinking on what a carbon budget might mean for valuation scenarios of public companies. The IEA is conducting a special study on the climate-energy nexus which will consider the carbon bubble. Together with our allies, we have brought it to the attention of the Bank of England’s Financial Stability Committee. We await their reaction to this analysis with great interest.

In view of all this, and mindful of the stakes in the carbon bubble issue, we hope that our second global report will prove useful to as wide as possible a constituency. We recognize that we are dealing with a risk mitigation exercise that begs involvement well beyond capital-markets research analysts and economists. Given the stakes for pension value, for example, should the carbon bubble go on inflating, the general public should certainly be concerned. Accordingly, we welcome wide echoing of the unburnable carbon message by campaigners since our first report, notably in Bill McKibben’s much quoted August 2012 article in Rolling Stone Magazine, ‘Global Warming’s Terrifying New Math’, and the ‘350. org’ campaign based on it. We commend that public engagement. We hope our deeper analysis in this report will fuel more.

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