Energy sector seen as threat to stability The immense size of the world's fossil fuel companies poses further risks to global financial stability if governments start to take tougher measures to combat climate change and undermine the industry's economic model, climate experts have warned in a new study. Lord Stern, the British economist and author of a 2006 UK government report on the economics of climate change, who wrote the study's foreword, says regulators are overlooking the threats posed by the coal, oil and gas companies that are blamed for climate change. "These carbon-based companies form a tremendous part of international financial assets and if those were at risk, as they surely would be if we took the [climate change] issue as seriously as we should, then that is potentially a major source of instability," he said in an interview with the FT. Regulators should take note because the risk from these "potentially toxic carbon assets" is not being adequately considered, he added. The study is the latest from the London-based Carbon Tracker think tank, which has calculated that much of known fossil fuel reserves cannot be burnt between now and 2050 if the world is to avoid potentially dangerous warming of more than 2C from pre-industrial levels. Countries agreed in 2010 at the Cancún climate change talks to cut emissions of carbon dioxide, the greenhouse gas produced when fossil fuels are burned, to keep temperature rises below this level. Action since has been patchy at best. The study shows the world's 200 biggest oil, gas and mining companies allocated $674bn last year to locate even more fossil fuel reserves. But policies to combat climate change have emerged in some leading economies. The US has imposed tougher federal pollution rules on coal-fired power plants in what critics have labelled a "war on coal." A surge in pollution in Beijing this year prompted Chinese leaders to promise a range of measures to cut emissions and save energy, though China shows little sign of losing its spot as the world's top coal consumer. There is growing interest in the idea that fossil fuel companies risk being lumbered with so-called stranded assets, or holdings that lose their value because of events such as a technological advance or new regulations. The Paris-based International Energy Agency is to publish a climate change report in June that will examine such risks for oil, gas and coal companies, as well as electricity generators. The agency has already estimated that about two thirds of total oil, gas and coal reserves could be stranded in the absence of technology that can capture and store carbon emissions, said IEA chief economist, Dr Fatih Birol. "But this year we look at it on a country by country basis and I think it will give an interesting picture," he said. A number of banks and credit rating agencies have also started analysing the stranded asset threat to fossil fuel companies. Standard & Poor's, the rating agency, concluded in a March study done with Carbon Tracker that smaller oil companies faced a potential risk of credit downgrades over 2014-2017 if tougher climate rules were implemented. But regulators have been slow to introduce rules that would let investors understand the potential risks posed by more rules on climate change, said James Leaton, one of the Carbon Tracker report's authors. Pretending business models reliant on more carbon emissions fit with increasing carbon constraints is the equivalent of the emperor's new clothes. It is time investors and regulators started looking more closely at how capital is being spent," he said. Carbon Tracker's research has also been taken up by US activists pushing investors to sell out of such groups in a campaign modelled on the 1980s disinvestment movement that pressed South Africa to dismantle its apartheid system of racial segregation.