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Oil Drum on BeachAs the nations of the world continue to use fossil fuels, two questions arise in tandem, not only “How is this affecting the environment?” but also “How long will this resource be a viable investment?” A new report from Carbon Tracker Initiative answers this second question by analyzing the costs associated with further oil mining and measuring them against global initiatives to reduce emissions.

In a “carbon-constrained” world, businesses that maintain reserves of crude may eventually be left with “stranded assets.” There is great potential for this with companies that heavily invest in oilsands, according to Matt Patsky, the CEO of an investment firm that seeks out businesses with minimal impacts on the environment.

According to the Carbon Tracker report, a collective $1.1 trillion has been earmarked for oil sector investments. These investments all deserve scrutiny by their respective firms, with special attention paid to interests in deepwater deposits, oilsands and the Arctic – all of which feature “at the high end of the carbon/capital cost curve.” The Alberta oilsands are particularly risky, as their isolated nature and landlocked position invite greater financial risk.

That risk comes not only in transportation fees and the cost of repairing and cleaning up after spills. The international community has decided that to stop global temperatures from rising two degrees Celsius, two-thirds of fossil fuel reserves must stay in the ground – through 2050. This has the potential to turn these reserves into “stranded assets” for their investors, dead weight that cannot be sold off in any market.

With environmentally-focused firms such as Trillium turning away from carbon mining, fossil fuel divestment gaining traction in America, and the United Nations urging measures to curb and reduce global warming, oil companies are beginning to feel the pressure. ExxonMobil has recently announced that it will now disclose stranded carbon asset risks in its reports.

To keep the industry solvent, Carbon Tracker estimates that about $21 trillion would need to be invested in high-risk carbon projects by 2050. But “in a world where demand is lower and that continues to take climate change and air quality seriously,” this investment would simply not be worth it.

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