The Carbon Bubble: Assessing the risks to investors in the EU and U.S. financial systems

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The Carbon Bubble: Assessing the risks to investors in the EU and U.S. financial systems

On December 4, 2014, the Heinrich Boell Foundation hosted representatives from the Sustainable Finance Lab and Carbon Tracker for a transatlantic discussion about the possible financial risks of the carbon bubble. The carbon bubble refers to a possible overvaluation of fossil fuel companies when the value of their assets is calculated without taking into consideration the need to reduce fossil fuel consumption in order to decrease our CO2 emissions and limit the increase in global temperatures to 2 degrees Celsius. As we transition to a clean energy economy, some financial investments in fossil fuel holdings will become stranded assets, or in other words, commercially unviable and unable to realize their current market value. The carbon bubble exposes investors and financial institutions in the EU and U.S. to risk and, given how closely European and U.S. financial and investment markets are linked, we should consider how these risks might be addressed in a transatlantic context.


Rens van Tilburg, Senior Researcher at the Sustainable Finance Lab at Utrecht University in The Netherlands, presented the findings of the report “The Price of Doing Too Little Too Late: The impact of the carbon bubble on the EU financial system”, which looks at the exposure of the 20 largest European banks, 23 large EU pension funds, and the EU insurance sector, to the potential risks of the carbon bubble. The report also analyses the potential impacts of a carbon bubble shock under three scenarios for transitioning to a low carbon economy.

John Wunderlin, Staff Attorney at Carbon Tracker Initiative, discussed recent research on high-cost high-risk fossil fuel investments, in particular “Carbon Supply Cost Curves: Evaluating Financial Risk to Oil Capital Expenditures”, and the implications of this research for understanding risk to financial entities. The Carbon Supply Cost Curves are tools designed to help investors understand their risk exposure and start directing capital away from high cost, excess carbon projects.


The discussion was moderated by Roric McCorristin, Program Director of The Transatlantic Energy and Climate Network at the Heinrich Boell Foundation.

Listen to the audio from the event:

The slideshows diplayed during the event:

Presentation of John Wuderlin (Carbon Tracker)

Presentation of Rens Van Tilburg (Sustainable Finance Lab)