Lately, it has been fashionable to talk of “stranded carbon assets” that will emerge as a risk to investors as pressure to mount a serious global climate policy increases. The thinking behind the carbon bubble analysis, recently presented by Al Gore, is that up to two thirds of fossil fuel reserves will not be monetized if the world is to remain below the 2 degrees increase in the global temperature that scientists say is the limit before the planet suffers devastating and irreversible damage.

In light of a possible carbon asset bubble risk, former Vice President Gore suggests “investors should determine the extent to which carbon risk is embedded in current and future investments.” In the first academic foray on the topic, my colleagues and I at UC Davis Graduate School of Management and University of Otago have done just that. In our new study, “Science and the Stock Market: Investors’ Recognition of Unburnable Carbon” we found that investors did have a detectable market response to the initial scientific disclosure on the implications for fossil fuels regarding the need to stay below 2 degrees of warming. In fact, some 63 American oil companies shed $27 billion in market capitalization in 2009 in the immediate aftermath of publication of the findings reported in a 2009 article in the prestigious Nature journal of science that only a fraction of the world’s existing oil, gas, and coal reserves can be emitted if global warming by 2050 is not to exceed 2 degrees above pre-industrial levels.

via Fuel Fix » Predictions of a Coming Carbon Asset Bubble Overstated.