This stark warning was issued by the U.K.-based financial think tank Carbon Tracker in two new reports, Fading Fortunes and Petro-Provinces at Risk. The authors found that the fast pace of renewable-energy adoption worldwide and the high costs of oil-sands operations put domestic producers at “heightened financial risk.”

The reports come as Ottawa and Alberta embark on a new partnership to build a pipeline from Alberta’s tar sands to the British Columbia coast. On November 27, Prime Minister Mark Carney and Alberta Premier Danielle Smith signed a memorandum of understanding (MOU) that will see the province accept a firmer industrial-carbon-pricing regime in exchange for federal support for the pipeline and some exemptions from federal greenhouse gas regulations. The MOU stipulates that the pipeline would be financed and constructed by the private sector and that Indigenous Peoples would be co-owners, though B.C. Coastal First Nations have already vowed it “will never happen.” 

Carbon Tracker modelled Canadian producers’ stated upstream investments against three potential scenarios: an accelerated energy transition consistent with the Paris Agreement, a moderate transition and a slow transition. In the most aggressive transition, “business as usual” investments of both new developments and new exploration would put up to 30% of Canadian oil and gas value at risk – about triple the size of any potential upside under the slowest transition scenario.

“We can’t predict exactly what the future will look like; we have an idea of a range of possible scenarios . . . and investors should be considering that range of realistic scenarios as part of their decision-making and risk-management,” says Olivia Bisel, an analyst with Carbon Tracker and the lead author of one of the reports. “A three-to-one ratio of risk to reward should stand out to investors,” she adds.

She points out that while her analysis found that more modest investments, including some new developments and limited exploration, led to a greater likelihood for producers to benefit in the moderate and slow transition scenarios, those gains were still minor compared to the significant risk if the energy transition happens quickly.

In almost all transition scenarios, Bisel says, Canadian producers are likely to fare worse than national oil companies like Saudi Aramco or Petrobras, and integrated oil companies like ExxonMobil and Chevron, which can produce more cheaply.

Layers of risk

Adam Scott, executive director at Shift Action for Pension Wealth and Planet Health, says there’s growing consensus among economists and other experts that there could be “broader market impacts to the stability of the financial system” if the financial sector doesn’t begin to price in the likelihood of declining oil and gas valuations. Shift advocates for pension funds to rapidly transition away from oil investments; not doing so, Scott says, could hit the retirement savings of millions of Canadians.

Bisel notes that 18% of Canada’s “Big Five” banks’ financing in 2024 went to oil and gas, two-thirds of which went to domestic producers. That kind of concentration could depress the amount of lending to other sectors of the economy if the transition unfolds more quickly than expected, she says.

Jobs, GDP (gross domestic product) growth and tax revenues are also at risk, Bisel says. The second Carbon Tracker report estimates that the energy transition could eliminate more than 80% of Canadian provincial governments’ expected revenue from upstream oil and gas in the 2030s.

Conflicting narratives

While oil and gas producers have allocated less of their free cash flow to new development in recent years, all Canadian producers shared guidance this year with plans to grow production (most of those guidances were specific to 2025).

The reports also come in a year when the country’s oil output has hit record highs and the trade war with the United States has made federal and provincial governments open to new pipelines and capacity-expansion projects.

“The market is saying very different things right now,” says Heather Exner-Pirot, senior fellow and director of natural resources, energy and environment at the Macdonald-Laurier Institute. The Carbon Tracker reports are expressing “a narrative [from] two years ago,” she says, but the mood is changing, and the energy transition now seems expected to be a slower one. “The market is looking to Canada for growth . . . because American shale is peaking, and there’s a demand for heavy [oil] that’s not being met.”

Scott, however, calls the report’s modelling “quite conservative” relative to others he’s seen. Despite an assumption among investors and others that the energy transition will be “incredibly slow or non-existent” if the world carries on with business as usual, “the economics of the transition have advanced so far that the transition is now self-reinforcing,” he says.

Renewable energy accounted for 90% of total power expansion globally in 2024, according to the International Renewable Energy Agency. The International Energy Agency also said in 2023 that oil and gas demand could peak by the end of the decade; BloombergNEF and oil giant BP estimated the peak even earlier, at 2029 and 2025, respectively.

Scott says that federal and provincial governments are “blindly and dangerously” looking to new energy production to steel the economy against the loss of a reliable trading partner. “A lot of the [energy transition] provides better opportunities for long-term growth and value creation at far lower risk.”

Kelsey Rolfe is a Toronto-based freelance business journalist with bylines in The Globe and Mail, Canadian Business, The Logic and the Financial Post, among others.

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Led by economist Gregor Semieniuk of the University of Massachusetts Amherst, researchers found that assets worth US$1.4 trillion in the oil and gas sector would lose their value globally. “Most of the market risk falls on private investors,” they add, overwhelmingly in Organisation for Economic Cooperation and Development (OECD) countries like Canada, with substantial exposure through investment funds, shareholdings, and pensions.

“The ownership distribution reveals an international net transfer of more than 15% of global stranded asset risk to OECD-based investors,” the researchers warn. “Rich country stakeholders therefore have a major stake in how the transition in oil and gas production is managed, as ongoing supporters of the fossil fuel economy and potentially exposed owners of stranded assets.”

While stranded assets are a normal consequence of “dynamic, capitalist economies,” the paper adds, they become a social concern when they destabilize financial markets with repercussions in the real economy, “such as on pensions and government finances.”

Stranded assets occur as the profitability of old products and industries falls below expectations—either because of disruptive policies, or when they are replaced by new technologies. They don’t usually indicate a systemic financial risk, since the emerging assets are able to buoy the overall financial sector. However, new climate policies aiming to limit global heating to 2°C call for a rate of industrial change that is dramatic enough to cause a rapid collapse of fossil fuel industries and “presents major transition risks.”

To better understand how this risk is distributed worldwide, the researchers calculated the expected profits from global fossil fuel assets and traced the possible losses from those assets. They calculated the losses from changing fossil fuel demand expectations using the shift from an expected baseline scenario to a revised scenario that represents updated expectations resulting from climate policies.

Losses were traced through four stages of entities that would be affected, moving from Stage 1 losses at the oil and gas field locations, to Stage 2 losses at headquarters, to Stage 3 corporate owner losses, and finally Stage 4 losses to the ultimate owners, including “governments and individuals, as shareholders or outright owners of companies or investors in funds, including pension funds.”

Of the US$1.4 trillion in stranded assets world-wide, the researchers found that physical stranded assets in OECD countries accounted for a total US$552 billion, or 39.2%. Stage 2 losses—on balance sheets of OECD-headquartered oil and gas companies—rose to US$728 billion, or 51.7%, because the companies own or have a claim on profits from production assets across the globe. Financial investments of OECD-based companies in oil and gas companies brought the share of losses to 57.1% for ultimate corporate owners in OECD countries. In Stage 4, 1.6% of losses were redistributed back to non-OECD countries, mainly through non-OECD clients of OECD-based asset managers.

The large exposure of pension funds will be a major concern, even if “outright financial instability is avoided,” the researchers warn.

“In all circumstances, the political implications of loss allocations at each stage are likely to be major,” they conclude, underscoring the need for international cooperation toward a stable phaseout of fossil fuels.

Christopher Bonasia is a staff writer at The Energy Mix and has several years’ experience sustainably raising livestock.

This article was first published in The Energy Mix.

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Consumers and governments are fighting back, demanding higher recycling rates and bans on single-use plastics. In the way, however, are many of the world’s biggest fossil-fuel companies, hoping that increased plastics production will make up for shrinking oil demand as the transportation sectors shift to electric power. According to energy think tank Carbon Tracker, the U.S. petrochemical industry has invested $97 billion in new petrochemical capacity over the past decade, and was planning another $40-billion worth of expansion over the next five years.

Can you say “stranded assets”? Industry can justify these investments only if producers promote ever-greater plastics consumption, especially in the developing world. Indeed, The New York Times reported last fall that Big Oil was lobbying U.S. trade negotiators to help them “flood Africa with plastic.”

Shareholder advocacy group As You Sow, based in Berkeley, California, is pushing back with a 50-page research report that says growth-hungry fossil-fuel companies are downplaying their investment risks. The report – Plastics: The Last Straw for Big Oil? – warns that “oil companies describe this growth as aligned with society’s goals to responsibly decarbonize. Yet, in a world that is awash with plastic production and waste, facing a continued climate crisis, and seeking environmental justice and equity, the proposed expansion of plastic production raises red flags for investors and requires enhanced scrutiny.”

The report offers 10 issues for investors to ponder. Here are five of them:

1. As growing ESG (environmental, social and governance) concerns push the world toward a net-zero, circular economy, more than US$400-billion worth of proposed global investment in plastic production, in total, risks being stranded.

2. With half the polyethylene produced in the U.S. already being exported, the industry’s growth assumptions rely on high plastic consumption in the “global South.”

3. The world mismanages about 41% of its plastic waste. Momentum is growing to reduce plastic consumption and shift to a circular economy – which would reduce feedstock demand.

4. With industry promoting more efficient plastics-recycling technologies, the report accuses producers of placing “responsibility and great costs on consumers, governments, or others at the end of the supply chain,” rather than assuming responsibility themselves. “There is no silver bullet solution to plastic pollution, and absolute reduction of plastic production is key.”

5. The industry’s carbon footprint will become a major concern. “Fossil-based plastics and other petrochemicals have a significant climate footprint,” the report says. It warns that the plastic life cycle alone could consume 19% of the world’s remaining carbon budget by 2040 if business continues “as usual.”

On top of that, more community and consumer groups are recognizing the local health risks of plastics production – which tend to impact lower-income communities. As You Sow says grassroots opposition is eroding the industry’s “social license to operate.” It urges investors to tighten the screws by asking producers tough questions, such as “Does your company have protocols and strategies that mitigate against the human-health risks associated with petrochemical emissions?” and “Does the company provide air-quality monitoring at the fenceline, and make this data publicly available?”

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Twelve years later, the world is coming to grips with the eco-disaster that is Bitcoin. The currency backstops an alternative global payment system, with the value of a single Bitcoin hitting $79,000 in mid-April, up from $10,000 in January 2020. But Bitcoins are intangible units of value created by networks of supercomputers, and the environmental impact of running these machines equals the carbon footprint of a mid-range industrialized country.

Many of these server farms are located in colder countries to save energy, and some, as in Iceland, Norway and Quebec, use renewable thermal and hydro power. But according to the University of Cambridge Centre for Alternative Finance (CCAF), two-thirds of Bitcoin power is generated from fossil fuels. About 75% of Bitcoin mining occurs in China, which derives 65% of its electricity from coal. (In May, ironically, China banned the country’s payment companies from handling Bitcoin transactions; its central bank dismissed virtual currency as “not a real currency.”)

Real or not, Bitcoin eats electricity. This became clear in mid-April when a coal mine flooded in Xinjiang territory, in China’s remote northwest. When the mine closed for safety inspections, the disruption to regional power plants briefly shut down a full third of Bitcoin’s global computing power. Suddenly, Bitcoin’s yearlong price run-up came to an end.

The CCAF estimates Bitcoin production will consume about 130 terawatt hours (TWh) of electricity this year – about the same as Argentina, the Netherlands or the province of Ontario. That’s a big jump from 2019, when the CCAF calculated that Bitcoin production burned 45 TWh.

And demand is expected to grow. As more miners set their caps for Bitcoin, the algorithms required to earn a Bitcoin become more complex, requiring ever more computing power.

The backlash has begun. In a bid to reduce its carbon emissions, China’s Inner Mongolia region is trying to shut down unauthorized Bitcoin miners. In May, Tesla founder Elon Musk tweeted that while he supports the notion of cryptocurrency, Bitcoin’s “energy usage trend over past [sic] few months is insane.” He said Tesla would stop accepting Bitcoin payments until the industry “transitions to more sustainable energy.” Analysts claimed Musk’s decision would send a strong signal to other firms.

Some Bitcoin miners are fighting back. They’ve signed a “Crypto Climate Accord” that proposes to decarbonize the crypto industry by making it 100% renewably powered by 2025. But that may not be enough to prevent Bitcoin from becoming a stranded asset – like existing coal mines and oil fields that society can no longer afford to operate.

Ben Ashby, a partner with London-based Good Governance Capital, says Bitcoin’s dependence on computer processing makes it a fossil itself. In addition, he says, Bitcoin’s decentralized nature defies ESG investors’ attempts to conduct environmental audits. Ashby believes investors will increasingly shun Bitcoin in favour of more sustainable solutions: “There is no intrinsic reason why this mining activity has to happen.”

With governments developing their own digital currencies, Ashby says Bitcoin’s fate may be to go down in history with MySpace and Betamax – as experiments that seemed like a good idea at the time.

The post Is Bitcoin the next stranded asset? appeared first on Corporate Knights.

Conrad MacKerron is senior vice president at As You Sow, where he manages the waste and plastic pollution programs.

As the world transitions to cleaner sources of energy in response to the climate crisis, the energy sector is facing significant reduction in demand for fossil fuel products. To hedge against shrinking demand from the power and transportation sectors, oil and gas companies like Exxon and Chevron are allocating significant resources to boost production of petrochemicals – especially plastics.

Proposed investments in expanding petrochemical infrastructure require enhanced scrutiny by investors as financial and ESG (environmental, social and governance) risks grow. Investors must ask whether this plastic-based bet will pay off, or whether the fossil fuel giants are clinging to an inherently flawed business model as a global plastic pollution crisis turns public opinion against cheap, wasteful, single-use plastics.

To shed light on this emerging topic, shareholder representative As You Sow today released a report, Plastics: The Last Straw for Big Oil?, addressing the competitive, ESG and stranded-asset risks of overinvesting in petrochemical infrastructure.

In the U.S., much of the petrochemical build-out is concentrated in two geographic hubs: the Gulf Coast and the Ohio River Valley, where proximity to low-cost ethane has historically provided a competitive advantage, especially over international producers. However, U.S. profit margins have narrowed significantly. Overcapacity from the previous wave of plastic investment, paired with assumptions about demand that are potentially overly optimistic, threatens the economic feasibility of planned and existing projects.

As overcapacity builds, plastic pollution has become one of society’s most intractable problems, with staggering volumes of plastic waste mismanaged. Current recycling systems and newer technologies like “advanced” recycling, in which low-quality plastics are broken down to make fuel, new plastics or other chemicals, fall far short in curbing the global plastic pollution problem. As a result, momentum is growing among consumers, markets, governments and other stakeholders to reduce plastic consumption, hold brands and manufacturers responsible for plastic pollution, and transition from a linear make-take-dispose plastic model to a circular economy where plastic materials can be efficiently collected at scale, in high volumes, and recycled many times over.

A recent study by The Pew Charitable Trusts and SYSTEMIQ calls for consumer goods companies to cut plastic demand by at least one-third. Major consumers of single-use plastics like Unilever and Procter & Gamble have already agreed to reduce use of virgin plastic by hundreds of thousands of tons. In 2016, the Ellen MacArthur Foundation launched its New Plastics Economy project, a platform for businesses and governments to make a range of commitments focused on a circular economy for plastics – more than 250 businesses have committed to 100% reusable, recyclable or compostable packaging by 2025. The World Economic Forum reports that 170 nations have pledged to “significantly reduce” consumption of single-use plastics by 2030, and China is set to ban and restrict single-use and disposable plastics over the next five years. Plastic producers have yet to take this momentum into account, which may deflate expectations for virgin plastic demand.

The world’s pursuit of a circular economy also aligns with our Paris Agreement climate goals of transitioning to a net-zero emissions economy. The petrochemical industry emits significant greenhouse gas (GHG) emissions across its entire supply chain, from extraction of fossil fuels through the end-of-life of petroleum-based products. The plastic lifecycle alone may be on track to consume 19% of the world’s remaining carbon budget by 2040 under business-as-usual. While the plastic industry narrative touts the GHG benefits of light-weight plastics over certain alternatives, company disclosure of emissions associated with the full plastic supply chain are lacking, especially as company activities, such as steam cracking of ethane into ethylene (a building block for plastics), stretch across sectors, blurring accountability boundaries. While companies typically disclose their Scope 1 emissions – those emitted directly by the company’s operations – and emissions from a company’s use of purchased electricity (Scope 2), other indirect supply chain emissions (Scope 3) are less well recorded. When assessing corporate GHG disclosures and targets, it’s critical for investors to understand which activities are “in scope” and which are left unaddressed.

Finally, planned investment in petrochemical projects is increasingly at odds with long-term environmental justice issues – people of colour are twice as likely to live within a fence-line community, immediately adjacent to and affected by a company facility, such as a cracker plant. These facilities use and emit dangerous chemicals with documented negative health effects and face growing opposition from grassroots organizations and community groups. Health risks are further heightened by climate change-induced extreme storms in the Gulf Coast – where most existing and planned petrochemical production capacity is located – causing dangerous chemical leaks.

Last year, shareholder resolutions filed by As You Sow requesting disclosure on the public health impacts of chemical releases associated with extreme storms garnered a majority vote at Phillips 66 and strong votes at Chevron and Exxon. These three companies own a large portion of petrochemical plants and assets throughout the Gulf Coast, with plans to build more. Chevron Phillips Chemical Company (a joint venture of Phillips 66 and Chevron) responded to the resolutions by publishing enhanced information about physical climate risk management, but meaningful discussion of community health impacts is still lacking.

For the first time this year, As You Sow filed a resolution with ExxonMobil requesting clear and targeted reporting on the risk of stranded assets related to its petrochemical investments in consideration of the public, market and governmental responses to plastic pollution, community health and climate change. Unfortunately, the U.S. Securities and Exchange Commission allowed Exxon to omit the resolution from its proxy this year, a decision at odds with investor concern and requests for transparent disclosure on this issue.

Given the multitude of ESG issues, investors need to provide ongoing and heightened scrutiny to assess whether industry’s proposed increase in fossil-plastic production will be a saving grace or a stranded asset in the making. Raising critical, timely questions serves as a starting point for more robust investor engagement on this evolving issue, before the plastic build-out is locked into place.

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