Fossil fuel companies hold vast oil, gas and coal reserves that help determine their market value. These reserves are also the basis to understanding the potential climate risks of burning these fuels. Yet not a single fossil fuel company in the world discloses potential emissions from their reserves – and that is a big problem.
This emissions information is important for investors, as well as the broader public, to understand the risks to these companies and the planet. Research shows that a large portion of the world’s fossil fuel reserves will have to be left in the ground if we are to avert the most dangerous impacts of climate change.
And the Financial Stability Board – the 20 most powerful central bankers and finance ministries in the world – today released a landmark report which calls for companies to disclose climate-related risks, both financial and physical.
Part of the challenge for fossil fuel companies is that until now there hasn’t been a consistent, credible methodology for them to calculate their potential emissions. Today, WRI launched the first-ever comprehensive methodology to measure and report potential emissions from oil, gas and coal reserves.
Companies owe it to their investors and to the public to use this new guidance and reveal the potential impacts of their reserves. There are three reasons:
1. If the entire reserves of fossil fuel companies are extracted and burned, the world will veer way off track to tackling climate change.
Scientists overwhelmingly agree that preventing the worst impacts of climate change will require limiting warming to 2 degrees C (3.6. degrees F). The world’s “carbon budget,” or the amount of emissions it can release and still stick to the 2-degree limit, is 986 GtCO2 between 2011 and 2100. Failing to stay within this budget could warm the planet past key tipping points, which would bring dire consequences such as wilted croplands, bleached coral reefs, mass extinctions of animals, and some regions such as North Africa and the Middle East becoming uninhabitable.
Fossil fuel companies have enough carbon stored in reserves to take us well over the 2-degree threshold. Preliminary analyses show that the 200 largest publicly traded companies (by reserve size) have at least 1,541 GtCO2 worth of potential emissions stored in their reserves, or 156 percent of the world’s carbon budget.
Alarmingly, this figure is based only on fuel burning, leaving out an important emissions source – the production and processing of the fuels. These upstream sources account for between 5 percent and 37 percent (an average of 15 percent) of fossil fuels’ total emissions, from exploration to consumption.