Terrifying math: How Carbon Tracker changed the climate debate

For decades fossil fuels were seen as a safe bet – until one simple study by a team of fund managers in 2011

In 2011 the Carbon Tracker Initiative launched its seminal 'Unburnable Carbon' study, warning many assets were over-valued (Pic: Carbon Tracker)

In 2011, the Carbon Tracker Initiative launched its seminal ‘Unburnable Carbon’ study, warning many assets were over-valued (Pic: Carbon Tracker)

By Ed King

“I think it’s a bollocks subject. I’m not interested in this kind of subject. I think this is complete hot air.”

This was the fruity view of an oil and gas trader in 2011, when asked to comment by the FT on a study suggesting fossil fuel reserves could become stranded assets due to new climate laws.

Not so long ago the idea oil, gas and coal companies could be wildly overvalued and at risk from future greenhouse gas cutting regulations was greeted with scorn.

Roll on four years and the ‘Unburnable Carbon’ report by the Carbon Tracker Initiative – a group of ex-fund managers, oil analysts and lawyers – has big oil running scared.

These scions of capitalism were even embraced by anti-capitalist protestors, who carried a giant inflatable silver and black ball representing the ‘carbon bubble’ of assets that cannot be used through the streets of New York ahead of the 2014 UN climate summit.

The bubble eventually burst in Wall Street, on the horns of the Merrill Lynch bull.


(Pic: Jeremy Leggett)

The world’s top oil, gas and coal majors have long resisted pressure from environmentalists to take climate change seriously.

For years, many bankrolled climate denial campaigns, secretly lobbying governments to water down green laws while investing heavily in exploring new reserves across the planet.

“The [climate] models aren’t that good,” Exxon-Mobil chief executive Rex Tillerson told shareholders earlier this year. Peabody Energy CEO Greg Boyce spun a similar line to his investors.

The science is “flawed”, he said. The supposed climate crisis was a mirage.

Historically generous dividends from fossil fuel investments once insulated chief executives like Tillerson and Boyce from criticism. Shareholders knew they were on a winner.

That confidence has started to wane, cracked by the collapse in global oil prices and the implosion of the US coal industry.

Amid the financial carnage, the Carbon Tracker Initiative (CTI), a small London-based NGO, started to create headlines the fossil fuel giants dreaded. The slump was not a one-off, it warned. Oil, gas and coal were no longer the safe bets of old.

(Pic: Carbon Tracker/2011)

(Pic: Carbon Tracker/2011)

Mark Campanale is not your typical tree hugger, favouring expensive suits over hessian shirts. After dabbling in green activism at York University in the early 1980s, the founder of CTI became a fund manager, working his way through Jupiter Asset Management, AMP Capital and Henderson Global Investors.

Few were interested in his theories about the risks associated with high carbon investments. But Campanale had tracked US coal stocks throughout the 1990s and early 2000s and was convinced they were overpriced.

He had at least one angry argument on the Henderson trading floor with a “very senior fund manager” who dismissed his concerns. This, he tells RTCC, was not unusual.

“The city is populated with people who… it’s not that they can’t get it – it’s that they don’t want to get it. My own experience of talking to mining and oil analysts at Henderson where I worked was their struggle with the idea you couldn’t burn all the fossil fuels. That was incomprehensible.”

Attempts to take his theory to other investor friends in the City were rebuffed. “Even some of the top sustainability folks would not sit down and discuss it. They just weren’t interested in it.”

The idea there is a finite amount of carbon dioxide that can be emitted was born off the back of the 2010 UN climate summit in Cancun, when countries formally committed to limiting warming to 2C above pre-industrial levels.

The Potsdam Climate Institute calculated that for a 20% chance of avoiding this ceiling, a maximum of 886 billion tonnes (GT) of carbon dioxide could be released by 2050.

That meant little to the general public, but the ‘Unburnable Carbon’ report spelt out its consequences for fossil fuel companies. It said only a fraction of the carbon in the world’s fossil fuel reserves – 2860 GT CO2 – could be used if countries were serious about meeting the 2C goal.

In a stroke, the CTI rendered the majority of reserves held by the likes BP, Shell, Exxon, Chevron and Peabody unburnable, posing a direct challenge to their business models.

“We knew that when you have a cap there would be a catfight about who could burn fossil fuels and not everyone would be winners. That gave reason for fund managers all around the world – Australia, Canada, America, Europe and Scandanavia – to start challenging companies,” says Campanale.

The Carbon Tracker Initiative team with Campanale (checked jacket) and Hobley (blue suit) at the centre (Pic: Darren Charles Holloway)

The Carbon Tracker Initiative team with Campanale (checked jacket) and Hobley (blue suit) at the centre (Pic: Darren Charles Holloway)

The tiny CTI research team thought the report would be the end of it. Campanale even missed the launch to take his kids to the Latitude music festival. Quite the opposite.

The 31-page report caused a stir across the city. An old friend in a law firm called to cancel an appearance at a mini-launch – its findings were toxic.

“The significance hadn’t dawned until we tried to launch it at a few law and accounting firms and we faced huge resistance,” says Campanale.

Instead, support came from a wholly unexpected angle, in the form of veteran climate activist Bill McKibben, founder of the 350.org NGO. He was sent the report by fellow campaigner and author Naomi Klein, who was stunned at its implications for the fossil fuel giants.

The CTI’s number crunching proved the genesis for one of the most powerful climate essays in the last decade: Global Warming’s Terrifying New Math, published in RollingStone magazine on 19 July 2012, authored by McKibben.

“I did base that article, and the subsequent divestment campaign, on CTI’s numbers,” he tells RTCC in an email.

“Those numbers have helped the world understand the contours of the greatest problem we’ve ever faced. Without their math we wouldn’t understand the momentum we must somehow stop to have a chance with climate change.”


The article was the “most poetic, brilliant piece of writing I’ve ever read,” says Campanale.

McKibben used it to unleash a new wave of activism at universities across the US in late 2012, encouraging students to demand their colleges ditch holdings in fossil fuels. By the end of 2013, there were 400 campaigns underway across the world.

By September 2014, the heirs of the Rockefeller oil fortune had offered support to a $50 billion divestment drive.

By December 2014, the UK’s energy chief Ed Davey was in on the act, warning pension funds with high carbon assets were at risk. Shell UK’s CEO complained about his comments.

It was too late – the genie had been unleashed.

As of August 2015, 349 institutions including the Norwegian Sovereign Wealth Fund, Stanford University and the Church of England have announced plans to ditch some or all of their fossil fuel holdings.

World Bank chief Jim Kim and the UN climate body have thrown their weight behind the movement.

Perhaps of equal significance, the CTI data encouraged the Guardian newspaper to launch its ‘Keep it in the ground’ campaign in March this year.

“There are trillions of dollars worth of fossil fuels currently underground which, for our safety, simply cannot be extracted and burned. All else is up for debate: that much is not,” wrote editor Alan Rusbridger.

Faced with an innovative attack on their business model, oil companies got on the defensive.

In March 2014 Exxon  wrote to shareholders denying there was any risk to its operations. “We are confident that none of our hydrocarbon reserves are now or will become stranded,” the company said. Shell followed two months later with a similar note reassuring investors, stressing transformation “will inevitably take decades”.

A July 2014 investigation by the Carbon Brief saw BP, Conoco Philips and Statoil line up to dismiss the threat of a carbon bubble, while US consultancy IHS ran a specially commissioned “deflating the bubble” series.

CTI chief executive Anthony Hobley was delighted with their response, even if he feels they failed to offer satisfactory answers to the core analysis. “It was huge. Whatever they say about you, they have to take you seriously, which shows your underlying analysis is sound. They can’t ignore it.”

Campanale agrees. “It was thrilling moment that Shell and Exxon took us seriously enough to produce 10 or 20 page letters to try and explain this,” he said. A series of replies from CTI branded the oil majors analysis “complacent” and said they understated their risks.

CTI’s analysis also exposed the lack of rigour at the heart of energy modelling in the City, Hobley adds. “The 2011 analysis connecting fossil fuel reserves and resources is fairly simple,” he says.

“You have got to ask yourself why had this not been done by the major analysts – Goldman Sachs, JP Morgan, Merrill Lynch or analytical firms. To some degree they were lapping up what the energy companies were saying. They’re the ones who do the forecasts.”

War on coal?

What really gave the CTI credibility was not so much this war of words with Shell, BP and Exxon, but the ruinous state of the US coal industry. Tottering after years of tougher sulphur and nitrogen regulations, coal companies starting going under.

Big names like James River Coal and Patriot Coal Corporation filed for bankruptcy, two of 26 that had gone under in recent years.

“What happened to US coal was the eye opener,” said Craig Mackenzie, senior investment strategist at Aberdeen Asset Management. “Suddenly you realised that the general constraint on fossil fuels could be much closer than we thought.”

At the same time, oil prices were starting to nosedive from around $110 a barrel to their current level of just under $50, placing high cost plays like the Arctic and tar sands under pressure.

Even media groups frequently hostile to green regulations started to pile in against high carbon investments.

In the FT, Martin Wolff asked if high levels of oil, gas and coal investments could be a “disastrous waste of resources that could be better deployed elsewhere”.

In the Daily Telegraph, Ambrose Evans-Pritchard said fossil fuel companies were throwing “good money after bad” and were “courting fate” by dismissing the prospects of a global climate deal in 2015. The Economist labelled the debate the “elephant in the atmosphere”.

Enter Carney

What happened next stunned everyone – not least the CTI team. The Bank of England and then the Basel-based Financial Stability Board (FSB) signalled their fears that stranded assets could be more than a theory.

Climate change was one of the “top risks” facing the financial services industry, according to Bank of England governor Mark Carney, who commissioned the One Bank Research Agenda in February and faced down criticism from leading UK climate sceptics for doing so.

And the G20 group of nations seemed equally concerned, asking the FSB to present its findings at this year’s summit in Turkey, which takes place two weeks before nearly 200 countries meet in Paris to sign off a long-planned UN climate deal.

The United States, China, India, Russia, Australia, and Saudi Arabia have all agreed to carry out internal stress tests, evaluating what the impact of new climate laws would be on the value of their fossil fuel reserves.

Abigail Herron, head of responsible investment engagement at Aviva Investors says the intervention of Carney signalled that stranded asset fears were now a reality. “It’s now in the mainstream investment dictionary,” she adds. “Three to four years ago I’d have to explain what stranded assets were and I don’t have to do that anymore.”

Mike Wilkins, managing director of Standard & Poor’s ratings services agrees that its profile has ballooned. “Whether fund managers and others have changed investment decisions as a result of CTI’s work is hard to say, but the issue of carbon risk is far more prominent now that it was just two years ago,” he says.

Global agreement?

All eyes are now on Paris, venue of the 2015 UN climate talks where a new global deal to limit emissions is set to be signed off by nearly 200 countries.

If successful, that will broadly see leading developed governments agree to cut carbon pollution by around 30% over the next 15 years, and top emerging economies target a gradual slowdown of their emissions – a trajectory Campanale points out is not one forecast by the oil majors.

Already, there are signs of more of the CTI’s predictions bearing fruit. Shell’s CEO took major shareholders to the tennis at Wimbledon to reassure them their investments are safe, despite what many analysts believe is the company’s high-risk Arctic venture.

Weeks later, it was revealed oil majors had written off $200 billion of new projects due to plummeting prices.

Elsewhere, Peabody coal posted $1 billion second quarter losses while Seaborne thermal coal giant Glencore looks set to announce a “calamitous” profit slump this week.

Mackenzie is full of praise for the quality of the analysis CTI has offered but is keen to observe the wide range of factors affecting fossil fuels – and particularly coal.

“It’s not a pure carbon story. It’s also a SOx, NOx and mercury story.” Had they tried this 5 years ago “it probably wouldn’t have worked,” he argues.

Has the analysis changed the City? Mackenzie, Wilkins and Herron are unwilling to go that far, but all say in terms of awareness raising it has propelled stranded assets into boardrooms previously deaf to these concerns.

Developing focus

Still, it’s easy to get carried away with a few quarterly results. Coal use is growing fast in non-OECD countries, rising by nearly 400% since 1990.

Demand may be falling in Europe and the US due to tightening environmental and emission standards but in China, India, Indonesia and the Philippines there are plans for hundreds more coal plants.

That does not invalidate the stranded assets theory, but it does highlight the urgency for developing countries to receive help sourcing cleaner forms of energy over the next decade.

New copies of the CTI’s work are to be published in several languages – including Chinese and Japanese – in a bid to widen the debate to South East Asia and the Far East.

Emerging economies with a lust for high growth may prove tougher nuts to crack, but Campanale’s journey over the past two decades has demonstrated to him that provided with credible and clearly presented information, shareholders can move mountains.

“The divest movement has mobilised thousands of little endowments and charities to challenge fund managers who have to go back and ask questions of companies,” he says.

“They have never come into the climate debate before but now they’re coming in on the side of the right outcome… that being an orderly [low carbon] transition because it’s the right thing for policyholders.

“There is no fiduciary duty to make the planet uninhabitable.”

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