Bank of England warned over "carbon bubble." Should you be worried?

Bank of England photo
CC BY 2.0 George Rex

Last week I posted that the Norwegian government was considering divesting from fossil fuels. Not long after, I read over at The Guardian that influential members of British Parliament have issued a warning to the Bank of England that fossil fuel companies may be grossly overvalued:

Stock markets are inflating a "carbon bubble" by overvaluing companies that produce fossil fuels and greenhouse gases, and this poses a serious threat to the economy, an influential committee of UK MPs has warned.

The idea of a carbon bubble – meaning that the true costs of carbon dioxide in intensifying climate change are not taken into account in a company's stock market valuation – has been gaining currency in recent years, but this is the first time that MPs have addressed the question head-on.

The warning comes from the Committee on Climate Change, and argues that financial experts should take advice from them on companies exposure to climate risk and its impact on financial stability. Whether or not such advice catches on in the short term, this will be taken as a promising sign by climate activists fighting for divestment from fossil fuels.

The debate is rapidly moving away from ethical investment, and into the realm of what makes longterm economic sense. Given the catastrophic costs of climate change we are already experiencing, not to mention the other negative impacts of fossil fuels, the case for a rapid transition to clean technology is becoming ever more compelling.

That transition will have winners and losers. And given that most of us with savings, pension funds or investments will currently have a significant amount of our money in fossil fuels, we should all be worried. Either the financial institutions manage an orderly transition, or we'll hit a financial and/or ecological wall somewhere down the line and the carbon bubble will burst with potentially devastating consequences.

That's even more motivation for us all to invest in clean energy, then, right?

Bank of England warned over "carbon bubble." Should you be worried?
As British parliamentarians warn the Bank of England that fossil fuels may be overvalued, we should all take heed.

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