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Big Five Alberta Fossils Face Up to $2 Trillion in Carbon Liabilities

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Greenhouse gas emissions from proven oil and gas reserves represent a C$320-billion liability for Alberta’s Big Five fossil companies, even at a relatively low price of $50 per tonne, the Parkland Institute reveals in a report published last week.

The liability, based on 2016 figures, far outpaces the companies’ combined market value of $189.9 billion, and exceeds the value of Alberta’s entire economy, at $309 billion. Factoring in their probable as well as their proven reserves, the unfunded liability confronting Canadian Natural Resources Ltd., Suncor Energy, Cenovus Energy, Imperial Oil, and Husky Energy hits $997 billion at $100 per tonne, or $1.995 trillion at $200 per tonne.

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“Even under the most conservative carbon cost scenario used in the report, the carbon liabilities contained in the reserves of the Big Five outweigh the total value of the corporations themselves, and taken together are greater than the GDP of Alberta,” said lead author Ian Hussey. “The enormous cost associated with these reserves being combusted underscores the simple reality that business as usual is not an option for these companies. Unfortunately, we’re not seeing that reality reflected in their actions to date.”

The impetus for looking into fossils’ carbon liability comes from the 2015 Paris agreement, which calls for a post-carbon transition over the next three decades to keep average global warming below 2.0°C. “Staying within a 2.0°C carbon budget will necessitate a reduction in total greenhouse gas (GHG) emissions, which will require a steady scaling down of oil and gas production and combustion,” Parkland notes. But so far, “government and industry responses to the Paris agreement have been split between, on one hand, recognition of the threats posed by climate change and the need for transition and, on the other hand, resistance to transition.

The new analysis brings that reality back to the greenhouse gas emissions embedded in the oil and gas reserves available to the Big Five fossils for extraction.

As publicly traded corporations, the Big Five work hard to deliver dividends to their shareholders by increasing oil consumption and externalizing costs,” Parkland states. “The point of calculating the carbon liability estimates for the Big Five’s reserves is to show the enormity of these costs should these reserves be combusted, and to stress that most of the profits accrued by the Big Five and their shareholders, who are mostly not Canadians (as of July 2017), are ‘paid’ by the public and the environment.

“If all of the Big Five’s reserves are ultimately burned, the billions of dollars in carbon liabilities will be paid by the public and governments through the cost of dealing with extreme weather events, climate change mitigation, and health impacts,” Hussey stated. “If some of these costs are instead reflected accurately in the bottom lines of these corporations, we’ll start to see the kind of responses from the Big Five—which has to include leaving some of their reserves in the ground—that the reality of climate change demands.”

The full report points to carbon accounting as a powerful tool for disclosing and acting on a company’s carbon liabilities.

“At present, carbon emissions remain a mostly externalized cost,” it notes [2], with the public and the environment funding the profits accrued by extractive corporations and their shareholders. Translating carbon emissions into monetary terms is an expedient means of helping to shift firms’ and investors’ decisions,” and “helps clarify how high the price on carbon must be for carbon pricing to positively contribute to emissions reductions in line with the 2.0°C target.”

At the same time, Parkland stresses, “we cannot assume that a carbon price alone is going to do the heavy lifting of shifting the world off of fossil fuels. The reality is that governments around the globe will need to ratchet up regulations in combination with increasing current carbon prices if we are to keep global warming below 2.0°C.”