The carbon bubble debate and its consequences for the global energy system and global energy companies


The decline in the price of coal, oil and gas in recent years speaks against a carbon bubble. Rather, the focus is on the question of what the Paris Climate Agreement means for coal, oil and gas companies. They have to review their business model and adapt it to the requirements of the global energy transition. The greatest challenges are likely to be for coal companies and the smallest for gas companies. Oil companies should evolve into oil and gas companies. Renewable energies are further options to complement traditional business models.


The decline of coal, oil and gas prices in recent years does not support the assumption of a carbon bubble. Much more relevant is the question what the Paris Climate Agreement means for coal, oil and gas companies. They must reconsider their business model and adjust it to the requirements of the global energy transition. The biggest challenges will most likely arise for coal companies, the smallest for gas companies. Oil companies should develop into oil and gas companies. Renewable energies are further options to modify traditional business models.

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The Paris climate protection agreement of December 12, 2015 gave the so-called carbon bubble debate an additional boost worldwide. After the carbon bubble– Due to the increasing demands of climate protection – now reinforced by the Paris Agreement – there is an assumption that fossil energy reserves in the world will be financially overvalued and investments in fossil energies would no longer be worthwhile. Consistent with the results, but with a different reasoning, the head of the Bank of England, Mark J. Carney, at a World Bank conference on October 10, 2015, called for the financial markets, and in particular companies in the fossil fuel sector, to take climate protection into account when evaluating their reserves. Most of the fossil energy reserves could not be used if the world wanted to avoid catastrophic climate change. The supporters of the Carbon Bubble-Theory of withdrawal from fossil energy companies, as z. B. Norway’s state oil fund has already completed the sale of its stake in the electricity company RWE. Allianz and important institutional investors in the USA, such as wealthy universities, have now made similar decisions. What is striking about these divestment decisions, however, is that they have so far focused on blocks of shares held in companies that are involved in the extraction and / or use of coal. But does the carbon bubble theory stand up to critical scrutiny?

Significance of the Paris climate protection agreement

The Paris Climate Agreement put the future of fossil fuels on the agenda of international politics. Companies involved in any form of coal, oil or gas need to wonder what this deal means for them. It would be a grave mistake to interpret the Paris Agreement as a political declaration of intent without serious consequences, as occurs again and again in international diplomacy. For this purpose, the Paris Agreement, with all its openness and non-binding nature, contains too many concrete details in detail and, above all, it will be legally binding on essential points once the agreement has been ratified.

  1. 1.The commitment of the international community to limit global warming to 2 ° C since the beginning of industrialization and to strive for the goal of 1.5 ° C.
  2. 2.Ending the rise in greenhouse gas emissions as soon as possible and greenhouse gas neutrality in the second half of the century. This means: no more growth in man-made greenhouse gas emissions, whereby the compensation of man-made emissions with measures that remove greenhouse gas emissions from the atmosphere is expressly provided.

The questions that had to remain open among around 200 participating states in order for the agreement to be approved include firstly the point in time when the temperature target of 2 ° C, preferably 1.5 ° C, will be reached, and secondlyhow it must be achieved; in particular, there is no explicit obligation to decarbonise, as this term was deliberately avoided. However, these and other unregulated points do not diminish the importance of the Paris Climate Agreement. Because more important than individual regulations or their deliberately accepted lack is the will of the international community to take the fight against climate change seriously. This signal will force an existing regulatory and socio-political development that will encourage the expansion of renewable, alternative and CO 2-free energies as well as the corresponding research activities, be it through state programs or through private commitments such as that of Elon Musk in the field of electromobility. These efforts were already successful before Paris, as the high growth rates of renewable energies show. They have the strongest growth of all energy sources, albeit starting from a low starting level. BP estimates its share in the global energy supply in 2035 at 9%. If you add hydropower, renewable energies should account for around 15% of global energy supply in 20 years.

Nevertheless, the individual effects of the Paris Agreement will differ. On the one hand, a distinction must be made between the short, medium and long-term consequences of Paris. On the other hand, the consequences vary depending on the region of the world. In addition, the increase in global energy consumption continues; BP estimates growth to be 34% by 2035. This is almost exclusively due to the hunger for energy of the up-and-coming developing and emerging countries outside the Organization for Economic Cooperation and Development (OECD), above all China and India as well as the other up-and-coming Asian countries such as Indonesia. This continuously growing demand for energy can currently and for the time being also essentially only be met with fossil fuels. Therefore, according to the assumptions of BP and also the forecasts of other energy companies and organizations, coal, oil and gas will form the backbone of the world energy system in 20 years’ time. The BP assumes a share of fossil energies in 2035 of around 80%. The various energy forecasts differ in important details and individual trends. But taking into account the likely expected developments in climate policy, they agree in this key statement: Even in two decades, the global energy supply will largely still be supported by coal, oil and gas. The various energy forecasts differ in important details and individual trends. But taking into account the likely expected developments in climate policy, they agree in this key statement: Even in two decades, the global energy supply will largely still be supported by coal, oil and gas. The various energy forecasts differ in important details and individual trends. But taking into account the likely expected developments in climate policy, they agree in this key statement: Even in two decades, the global energy supply will largely still be supported by coal, oil and gas.

Doubts about key carbon bubble assumptions

This assessment alone represents a blanket carbon bubbleAssumption in question. The world is in the middle of a global energy transition, the goal of which the Paris Climate Agreement has now clearly stated. However, not all of the switches can be changed immediately. In addition, regional peculiarities are increasingly important, which is also taken into account by the Paris Climate Agreement. The further increase in coal and oil consumption has its focus in the emerging developing and emerging countries outside the OECD. On the other hand, developments are already underway in the industrialized countries of the OECD that could shape global energy supply in the long term. It should be certain that fossil fuels – with increasing regional deviations, especially in Europe – will still dominate the world for the first half of the century. Their role in the second half of the century will depend on how the Paris law of greenhouse gas neutrality is interpreted worldwide in the second half of the century. Does decarbonization actually take place or does CCS still set in – that is, theCarbon capture and storage technology – by worldwide or are there new technical processes to remove greenhouse gases from the atmosphere by burning fossil fuels or to use them for other purposes?

In addition, the current development in prices for coal, oil and gas shows that there is no question of a bubble in the valuation of fossil energy reserves. Market situations such as those that occurred before the dot-com bubble burst in 2000, the subprime bubble in the USA before the outbreak of the financial market crisis in 2008 and with sustained sharp price increases in local and regional real estate markets are usually referred to as bubbledesignated. In all of these market constellations, there was a threat of a sudden collapse of assets. Such a situation does not currently exist for coal, oil and gas companies. On the contrary: The prices for all fossil fuels have fallen worldwide in recent years. In particular, the oil price fell from around US $ 100 per barrel to US $ 35 from mid-2014 to the end of 2015 / beginning of 2016, i.e. almost two thirds.

The markets for fossil fuels lack the speculative element, the expectation of continuously rising prices, the associated market euphoria and the great concern about the crash – unlike in the previous bubble situations in the markets mentioned. There is another one: The Carbon BubbleThe debate is primarily aimed at those involved in the international financial markets in which private energy companies are present. However, 80% of the reserves and production for oil and gas are in the hands of state-owned companies, which pursue a different agenda than profit-oriented and financial investors compared to responsible oil and gas companies. The state players in this area also have completely different tasks: They should generate an equally continuous stream of income through continuous oil and gas production, with which state budgets as well as economic and social policy goals can be financed. For these companies, it is of secondary importance whether a carbon bubbleDebate could lose their reserves of value. The decisive factor is rather the long-term perspective in the use of their fossil energy reserves and thus the question of how the demand for coal, oil and gas will continue to develop.

What is also striking about the carbon bubble discussion is the reversal of the general debate about the future of fossil fuels. Since the Club of Rome’s 1972 report on the limits to growth, the prevailing view was that the end of global oil reserves in particular, but also of other resources, was foreseeable and therefore urgently needed to be redirected. This opinion found the most vivid expression in the peak oil theory, according to which the peak of global oil production is imminent. A number of apparently convincing evidence was cited as evidence for this: The increasing exhaustion of very large, so-called super giants-Oil fields, the unsuccessful efforts to find and develop new oil deposits of this size, and the fact that conventional oil production in the US had peaked in the early 1970s (a similar development occurred in the late 1990s in the North Sea oil stocks).

The counter-arguments – ongoing advances in production technology as well as the considerable so-called unconventional oil resources such as the Canadian tar sands or large offshore deposits in coastal areas – were given little credence. In the meantime, that has changed. The shale gas and shale oil revolution in the USA, which was made possible by the new production technology of hydraulic fracturing (fracking) and which has given oil and gas production in the USA a second spring, reveals the artificiality of the conventional distinction between conventional and unconventional oil and gas resources. The Peak OilTheory was only convincing with regard to the so-called conventional deposits. If you give up the differentiation between conventional and unconventional resources, this theory collapses. With regard to the extent and finite nature of coal, oil and gas resources, the only question that should matter is how many hydrocarbons are still stored in the earth’s crust. The answer to this question is almost indisputable: These reserves are still very extensive and will definitely last for the rest of the century for oil, and well beyond that for coal and gas. Not even companies in these areas have ever seriously assumed that these resources are being used to their full extent. Former Saudi Oil Minister Ahmed Zaki Yamani said that The Stone Age did not end due to a lack of stones and the oil age would not end due to a lack of oil, this also applies accordingly to coal and gas. The use of these fossil energy reserves will then decline or possibly come to an end as soon as technically and financially acceptable alternatives are found.

So there is no shortage of fossil energy reserves. The alarm call from the Club of Rome and the peak oil theory are obsolete. Otherwise it could not be explained that the oil price has more than halved since mid-2014. This rapid and sharp drop in prices has surprised even the oil companies. The reason for this, however, is not a worldwide decline in demand, but the expansion of the oil supply due to the additional oil quantities that have come onto the market due to the new Shale OilProduction in the USA and by maintaining the previous Saudi oil production volume. The current oil price level follows the classic pattern of changes in supply and demand. If the supply increases without a corresponding increase in demand, the price falls.

It is therefore not surprising that the criticism of the use of fossil fuels, which has always existed, has shifted from the supply to the demand side. Now there is no longer any warning about the exhaustion of resources, but rather about the continued use of fossil fuels in the previous style because of climate change. The arguments for this are far more sound than the calls for cash from the Club of Rome and the Peak Oil apologists and have found their expression in the Paris Climate Agreement. It is a fact that CO 2 emissions have been increasing steadily since the beginning of the industrial age. The CO 2-The proportion in the atmosphere is almost 50% above the pre-industrial level. In parallel to these emissions developments, the global average temperature has risen. The connection between climate change and the increased use of fossil fuels is obvious. It can no longer be seriously denied that current climate change is essentially man-made. However, it would be good for the climate debate if other influencing factors such as B. Variations in solar radiation would be examined more closely and also taken into account. The seriousness of the problem and the need to solve it in no way put this into perspective.

Consequences for the business models of companies in the fossil energy sector

Since the carbon bubbleDiscussion obscures more than it illuminates, should it be replaced by the question: What do coal, oil and gas companies have to adjust to after Paris? Companies can only act within the existing legal framework, which in turn is the result of political debates. Companies cannot avoid this. Above all, however, the business model of every company is oriented towards meeting a specific need and the associated business and profit prospects. No political debate, no international agreement or national legal rule will change that. However, these framework conditions can in turn influence the needs, i.e. the demand behavior of customers. Only in this way can the business models of companies change.

It is therefore legitimate for coal, oil and gas companies to primarily ask whether and how international and national climate regulations affect their markets, i.e. their customers. As long as there is a need for fossil fuels even with such regulations, the business models of the respective companies will be sustainable. Consumer behavior on the markets for coal, oil and gas, international agreements such as the Paris Agreement and national climate protection regulations can best be summarized from a company perspective in one question: Are there customers of companies that deal with fossil fuels, Alternatives and is it prepared to bear three forms of costs today and in the future – also in comparison to possible alternative energies: Firstthe financial costs of a fossil fuel (including a profit margin for the company), secondly its ecological and climate protection costs and thirdly its costs of socio-political acceptance?

Consequences for the business model of coal companies

The market for coal – the power supply – is characterized by the fact that there are relatively many different energy sources with which electricity can be generated. In principle, gas, nuclear energy and renewable energies including hydropower (and also, although not advisable, oil) are equally suitable for generating electricity. Nevertheless, coal still plays the most important role in power generation worldwide because there are extensive resources on favorable terms. So far, the CO 2 introduced in some regions have also benefited from this-Emissions trading systems nothing changed. Particularly in the up-and-coming emerging countries with their ambitious industrialization goals, there is no indication that coal will be replaced by other energy sources in the foreseeable future. There are currently almost 4,200 new coal-fired power plants announced, planned, approved or under construction worldwide, around 85% of them in Asia. It is unlikely that these projects will all be put on hold now. In addition, coal-fired power plants have a life cycle of around 40 years. All coal-fired power plants that are going into operation today or are planned will therefore still be used after 2050, i.e. in the second half of the century, that is, even if greenhouse gas neutrality is already in place.

However, the latest BP Energy Outlook 2035, published in early 2016, isFootnote1 assumes that global demand for coal will weaken significantly in the next 20 years and will only increase by an average of 0.5% per year (compared to an annual increase in demand of almost 3% in the last 20 years). In China it can be observed that the share of coal in electricity generation and thus also the increase in the corresponding CO 2-Emissions are slowing down and, at the same time, significant investments are made in renewable energies. According to the BP Energy Outlook 2035, Chinese coal demand will only grow by 0.2% annually until 2030 and then decline; in the period 2000–2014 the annual increase was still 8%. This trend reversal in the use of coal in China, with a medium-term effect, could have a far-reaching signal effect. The reason for this development lies not only in climate protection, but also in the goal of reducing pollution in large metropolitan areas. According to the 3-cost scheme mentioned aboveSo in China the ecological costs and, due to an increasingly critical public, the costs of the socio-political acceptance of the use of coal have reached a critical threshold.

In the USA, the extensive production of shale gas that began in 2008 has led to the replacement of coal by gas in power generation. So here it is the financial cost of using coal that is making it increasingly unattractive in the US. In addition, there are the measures of the Clean Power Plan presented by President Barack Obama, which increases the climate protection costs and the costs of socio-political acceptance resulting from regulatory interventions and the corresponding public relations work and thus makes alternatives attractive. The extent to which this development is sustainable as a result of the recent intervention of the US Supreme Court against this policy remains to be seen at the moment. However, this court ruling does not change the price advantage of shale gas. There are structurally similar developments in Europe as well. The British government intends to end coal-fired power generation by 2025. In 2015, Germany actually decided to phase out lignite, and Agora, probably the most influential energy think tank in Germany, is now proposing to phase out almost all coal-fired power plants in Germany by 2040.

With regard to the question of the future use of coal, a global trend driven by climate protection is likely to have started. Unsurprisingly, institutional investors are reacting to this, even though this development has nothing to do with a carbon bubble . It is obvious that the Paris Agreement will have serious long-term effects, especially for coal companies.

Consequences for the business model of oil companies

Even if the use of coal is increasingly at the center of climate protection measures, this does not mean that the use of crude oil as a link for climate protection measures is less important. However, the climate change challenge is not that big here. Traffic only accounts for half of the CO 2-Emissions from power generation. In addition, in contrast to power supply, the core uses of oil have far fewer alternative energies available as substitutes. If one disregards the still occurring but unnecessary use of oil in electricity generation and the end of the use of oil in space heating (heating oil) that is in sight or at least possible in principle, there are two areas in which there is no alternative option for the foreseeable future about oil are: Transport, the largest sector in which oil is used, and petrochemicals, which account for around a fifth of the crude oil produced and which is an essential branch of the economy for industrialized, emerging and developing countries alike (for example wind turbines or underground cables for to establish the power transmission).

Today there are already around one billion motor vehicles (cars and trucks) worldwide. These vehicles are operated almost exclusively with gasoline and internal combustion engines. The BP Energy Outlook 2035 predicts that the vehicle population will grow to at least 2.4 billion by 2035. Intensive discussions, research and testing of alternative energies such as biofuels, electromobility, fuel cells and hydrogen have been going on for a good ten years. However, so far no other energy source has prevailed that can keep up with gasoline and diesel in terms of the combination of energy density, range, accessibility in vehicles and affordability, as well as bringing the advantages of a supply infrastructure such as that offered by gas station networks. In particular, biofuels have not kept up what one expected from them a good ten years ago. In the meantime, concerns about the sustainability and climate protection effect of biofuels have grown steadily. It is likely that the proportion ofbiofuels in the fuel supply has leveled out globally at no more than 5–10%. There are great hopes associated with the electric car. However, as long as the weaknesses of the batteries that can be used in electric vehicles in terms of performance, charging time, costs and range are not eliminated, electromobility will not experience a breakthrough. It is far more likely that the combination of the advantages of the combustion engine and the electric drive in the form of the hybrid engine will dominate the picture in the coming decades.

This means a significant decrease in average fuel consumption. This reduction in consumption, which also requires regulatory requirements in all important regions (USA, European Union, China and others), is compensated for by the increase in the number of vehicles and the increase in individual automobility. In addition, there is the further increase in freight and air traffic, in which the use of electrical drive components is hardly or not possible. That is why the BP Energy Outlook 2035 assumes that oil consumption worldwide will continue to grow by 15–20% over the next 20 years. However, this is significantly less than the general increase in global energy consumption, which will increase by almost 34% by 2035. So the hunger for oil is decreasing. This can also be seen in the significantly declining share of oil in the global energy mix. At the beginning of the 1970s it was still almost 50%, in 2035, a good 60 years later, it will only be around 27–28% and thus no more than the share of coal and gas in the global energy supply. Although oil consumption is still increasing in absolute terms on a global basis, the importance of oil for global energy supply is declining in relative terms. The 21st century will not be a century like the 20th the importance of oil for global energy supply is declining in relative terms. The 21st century will not be a century like the 20th the importance of oil for global energy supply is declining in relative terms. The 21st century will not be a century like the 20thbe king oil .

Oil companies must take this development into account in their business models. There is also a trend in most OECD countries: since the middle of the last decade, the consumption of mineral oil products has been falling in most of the OECD countries (even if there was an increase in oil consumption for the first time in 2015 due to the fall in oil prices). By 2035, oil consumption is expected to decrease by 18% in the OECD countries. This decrease is more than compensated for by the development outside the OECD area described above. But apparently there seems to be a link between economies characterized by high vehicle mobility, mature industries, related and other high quality services, and the decline in their oil consumption. This indicates a direction into which the world economy as a whole could develop in the future. Again, this would be a trend that would affect the business model of oil companies. Only that would be a long-term development, which in any case in the next twenty years would not change the fact that the oil companies can expect a moderate worldwide increase in oil consumption and therefore the fundamental continuation of their previous business model. However, with modifications in important aspects: The decline in oil consumption in the OECD countries will continue, insofar as, unlike in the past, it is about predatory competition in a shrinking market. And the technological development in alternative drive energies will continue without any breakthroughs in this direction being foreseeable; The combination of conventional and alternative drive energies (hybrid motor) is far more likely. In addition, the following sentence still applies:The last drop of oil is burned in an airplane.

Consequences for the business model of gas companies and the role of renewable energies

Gas companies are even further from an immediate change in their business model. The combustion of natural gas generates the lowest CO 2 compared to the other fossil fuels-Emissions (compared to coal 50% less per comparison unit), and it is best suited for use in fossil-fuel power plants, which are also used in an electricity system consisting predominantly of renewable energies to compensate for the fluctuations in electricity generation naturally caused by wind power and photovoltaics become. The power supply of the 21st century is shaped by the triumphant advance of renewable energies. The exciting question remains whether coal or natural gas will win the race as the main energy source for the necessary backup power plants in the long run (after Paris, the die will likely fall in favor of gas power plants). As part of the 3-cost schemea decision is made as to which of these two fossil fuels generates the higher environmental and climate protection costs as well as the higher costs of socio-political acceptance. Advantages in this comparison are likely to outweigh financial cost advantages. In this respect, natural gas is likely to have the better cards overall. At the same time, it offers the opportunity for oil companies to adapt business models geared towards oil through increased involvement in natural gas projects. BP already produces as much natural gas as it does crude oil and will increase its gas share in its production activities (the so-called upstream business) to 60% in future. This mixed business model is a good strategy for traditional oil companies to assert themselves in the global energy transition.


The Carbon Bubble debate has put before the Paris agreement on climate change the discussion going, whether investments still pay off in companies that have to do with fossil fuels and whether investments could lose in such companies in the long term significantly in value. Based on the experience of the last 15 years with various price bubbles on certain technology and real estate markets, the term bubble means an increased financial risk for investors due to market exaggerations. However, the decline in coal, oil and gas prices in recent years contradicts the assumption of a carbon bubblein the field of fossil energies. There is no market overheating, speculation about higher prices and the associated irrational debates. Rather, it is a general surprise that the oil price fell to almost a third from mid-2014 to the turn of the year 2015/16.

The different regional perspectives in the use of fossil energies – especially in the case of coal and oil – also contradict the carbon bubbleAdoption. In the OECD countries there is a sustained decline in oil consumption and a trend away from coal-fired power generation. But in the predominantly Asian growth markets, the consumption of coal and oil is currently increasing even further; New investments in these areas also remain attractive there. This is respected by the Paris Climate Agreement; a trend reversal is only likely in the medium and long term and is also designed by the Paris Agreement. After all, a large part of the world’s oil and gas resources are in the hands of state-owned companies, which do not orientate themselves on international financial markets and their rules, but on the respective government policy.

The carbon bubble debate has been replaced by the question of what this agreement means for coal, oil and gas companies as a result of the Paris Agreement. They have to review their business model and adapt it to the requirements of the global energy transition that is being driven by Paris. For companies in the coal sector, this is likely to pose the greatest challenges. For companies with a strong tradition in the oil business, adding to and turning to natural gas offers very good opportunities in the global energy mix of the future. The easiest way for gas companies to adapt their business model is likely to be.

In the context of a contribution about the carbon bubble discussion or the consequences of the Paris climate agreement for coal, oil and gas companies, the reference to the importance of renewable energies can be limited to a few obvious statements. The high growth rates for renewable energies – an average growth rate of 6.6% up to 2035 – underline their high attractiveness for energy companies and investors. Companies in the field of renewable energies have good prospects for expansion; for traditional energy companies, renewables are a welcome opportunity to complement conventional business models and adapt them to the global energy transition in the long term.

Overall, however, the real, but hidden, effect of the Paris Agreement will probably lie in the technological boost it is likely to trigger. Above all, Paris is an initial spark for innovations in the future of energy and climate protection. It is up to all actors to recognize this hidden message from Paris and to make it the leitmotif of their actions. If that succeeds, the Paris climate protection agreement can actually become the success story that most are now hoping for.

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