Bank of England Warns About Carbon Bubble

Insurance companies could suffer a “huge hit” if their investments in fossil fuel companies are rendered worthless by action on climate change, the Bank of England warned on Tuesday.

“One live risk right now is of insurers investing in assets that could be left ‘stranded’ by policy changes which limit the use of fossil fuels,” said Paul Fisher, deputy head of the bank’s prudential regulation authority (PRA) that supervises banks and insurers and is tasked with avoiding systemic risks to the economy.

“As the world increasingly limits carbon emissions, and moves to alternative energy sources, investments in fossil fuels – a growing financial market in recent decades – may take a huge hit,” Fisher told an insurance conference. He said there “are already a few specific examples of this having happened”, but did not name them, and added that it was clear his concerns had yet to “permeate” the sector.

The new warning from one of the world’s key central banks follows a caution from its head Mark Carney that the “vast majority of [fossil fuel] reserves are unburnable” if climate change is to be limited to 2C, as pledged by the world’s governments. The bank will deliver a report to government on the financial risk posed by a “carbon bubble” later in 2015.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza