Former governor of the Bank of England (BOE) Mark Carney speaks during a news conference in London on March 11, 2020.
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The likelihood of fossil fuel assets being rendered worthless underscores the need to decarbonize the world’s economy as quickly as possible, according to Mark Carney, the U.N.’s special envoy on climate action and finance.
His comments come in the runup to COP26, one of the most important climate summits ever held. The U.K. will host U.N.-brokered talks in Glasgow, Scotland from Oct. 31 through to Nov. 12.
Speaking to CNBC’s Steve Sedgwick for the Sustainable Future Forum, Carney, the former governor of the Bank of England, said it was essential to “retool the plumbing” of financial markets so that every financial decision can take climate change into account. This includes steering lending away from fossil fuels and toward renewable energy alternatives.
“We need to mainstream this transition to net zero if we are going to get to where the world needs,” Carney said in an interview aired on Thursday.
As part of this effort to reach net-zero carbon emissions by 2050, Carney referenced the U.N.’s Glasgow Financial Alliance for Net Zero, or GFANZ, that is seeking to accelerate the transition to a low-carbon economy.
Chaired by Carney, this global coalition of leading financial institutions is responsible for assets of more than $90 trillion.
A bulldozer parked near a coal mound on the grounds of the Peabody Energy Francisco coal mine in Francisco, Indiana, U.S., on Thursday, Sept. 23, 2021.
Luke Sharrett | Bloomberg | Getty Images
When asked whether he had had to compromise his own views on fossil fuels to get more companies on board with GFANZ, Carney replied: “No, well absolutely not. What we’re doing is ensuring that those who are closer to the action, if you will, in the energy sector and making those determinations of which projects, are consistent with a 1.5 degree [Celsius] transition.”
“We have a combination of things in the world right now and we see it playing out in the U.K. and playing out in Europe most acutely,” he continued. “We have both too many hydrocarbons, enormous stranded assets, whether it’s in coal, three-quarters of coal, half of gas, roughly the same of oil, we have too many fossil fuels. And we don’t necessarily have enough of fossil fuels in the right place.”
“That all screams transition, being transparent about transition, supporting those generation mechanisms that will help get us to ramp up and allow us to ramp up net zero power as quickly as possible.”
The term “stranded assets” refers to assets tied to fossil fuels that are no longer able to generate an economic return because of changes associated with decarbonizing the economy.
Carney, as governor of the Bank of England, first warned about the “potentially huge” risk to investors from stranded assets in 2015, saying vast reserves of coal, oil and gas could become “literally unburnable.”
‘It’s about energy in the right place at the right time’
Politicians and business leaders are under intensifying pressure to meet the demands of the climate crisis by delivering on promises made as part of the landmark 2015 Paris Agreement.
The accord aims to limit global heating to “well below” 2 degrees Celsius above pre-industrial levels, and preferably to limit warming to the threshold of 1.5 degrees Celsius.
To achieve these goals, delivering on climate finance is expected to be a core issue at COP26.
The United Nations Environment Programme’s annual production gap report, published on Wednesday, found governments were collectively on track to produce more than twice the levels of fossil fuels in 2030 than would be consistent with global climate targets. It described fossil fuel production as “dangerously out of sync” with goals set in the Paris Agreement.
To be sure, burning fossil fuels, such as coal, oil and gas, is the chief driver of the climate crisis. Yet, while more countries have set net-zero emissions goals than ever before, some of the largest oil, gas and coal producers have not yet outlined how they plan to drastically scale down fossil fuel use.
Earlier this year, the influential International Energy Agency concluded in a bombshell report that there should be no new oil, gas or coal development if the world was to reach net-zero fossil fuel emissions by 2050.
When asked whether he was at odds with the IEA’s views on there being no room for any further fossil fuel development, Carney replied: “As I said before, there are stranded assets, we need a smooth transition, it’s about energy in the right place at the right time. Certainly, we do not need additional and need to steadily reduce our contribution from fossil fuels.”
“But, getting specific gas from a specific location to get people off coal for a period of time can be part of the transition. This is about mapping from global statement to local action consistent with that,” he added.
Carney said this was part of the reason why the financial sector had to be involved in setting clear climate targets, “including ones for winding down stranded assets.”
“If you’re going to push me then I’ll say explicitly, it’s about looking at the net, what is the net contribution from fossil fuels, [it] clearly has to go down significantly, and ultimately, wound down. And that’s the key, but these are complex energy systems,” Carney said.
“We used to run the banking system without adequate reserves, we found out that didn’t work very well. It’s not a good idea to run the energy system with very limited amounts of storage and there needs to be some adjustments to that. That is on the margin in a broader and critical trajectory of reduction of fossil fuels.”
