An international group of researchers claims that the so-called “carbon bubble” will burst as the demand for fossil fuel is predicted to decline in the future.
For years, fossil fuel was considered a safe financial bet by many investors. In fact, the Energy Agency has projected that there will be a rise in fossil fuel price until 2040.
However, a recent study conducted by an international team of researchers revealed that the current technological changes in global power and transportation group could potentially lead to a decline in the fossil fuel demand. This, according to experts, could trigger a sudden carbon bubble burst.
The fall in demand was predicted using detailed simulations by a team of economists and policy experts from the Cambridge University, Radboud University, the Open University, Macau University, and the Cambridge Econometrics.
Apparently, this demand fall could potentially leave vast reserves of fossil fuels as “stranded assets” which could shift its value from high to low sometime before 2035. According to experts, the sudden slump in the value of fossil fuel could have a huge impact on long-term investments.
The study further suggests that in a one-and-four-trillion U.S. dollars equivalence, the global economy in fossil fuel assets alone could be wiped out.
The researchers also warned of vast losses should governments continue to favor carbon-intensive economies over renewable energy. The repeated simulations done by the researchers gauged the outcomes of many global economic combinations and environmental changes.
It is said to be the first time that the evolution of low-carbon technologies has been mapped using historical data and has been used to do an integrated assessment modeling.
“Our analysis suggests that, contrary to investor expectations, the stranding of fossil fuels assets may happen even without new climate policies. This suggests a carbon bubble is forming and it is likely to burst,” Professor Jorge Viñuales, co-author of the study from Cambridge University and founder of C-EENRG, was quoted as saying.
On the other hand, Hector Pollitt from the Cambridge Econometrics believe that action must be done immediately to stop the bubble from bursting.
“If we are to defuse this time-bomb in the global economy, we need to move promptly but cautiously. The carbon bubble must be deflated before it becomes too big, but progress must also be carefully managed,” Pollitt said.
Details of the team’s study have been published in the journal Nature Climate Change.