Fossil fuel companies risk wasting more than £1 trillion of expenditure by 2025 if they do not take the world’s climate goals into account, experts say.
Businesses which “overinvest” in marginal oil, gas and coal projects based on the current policies of governments could destroy shareholder value worth billions of pounds, a Carbon Tracker report said.
This is because of the gap between present policies, which would lead to temperature rises of 2.7C above pre-industrial levels, and what is needed to meet the goals of the Paris climate deal to limit them to between 1.5C and 2C.
Companies should expect a “ratcheting up of international efforts” towards meeting the Paris Agreement, which it said would render investment in areas such as Arctic oil, liquefied natural gas facilities and new coal mines wasted.
The Carbon Tracker report compared demand for fossil fuels under the International Energy Agency’s scenarios for around 1.75C of warming and 2.7C of warming, looking at oil, gas and coal production to 2035 and investment to 2025.
It found that 1.3 trillion US dollars (£940 billion) of future spending on oil is at risk, with schemes such as new tar sands projects made uneconomic.
Some 228 billion US dollars (£164 billion) in gas investment is also at risk, with half of potential future spending on European gas development uneconomic, it said.
And it said 62 billion US dollars (£45 billion) in coal schemes would be at risk by 2025, with no new coal mines expected to be viable except in India to replace imports.
The report also said private investors were at a far greater risk than state-owned companies when it came to spending on unneeded oil and gas projects.
Andrew Grant, senior analyst at Carbon Tracker and report author, said: “At present, governments’ policies fall a long way short of the ultimate goal committed to at Paris, but we should expect a ratcheting up of international efforts.
“Companies that misread the signals and overinvest in marginal oil, gas and coal projects based on a false sense of security could destroy shareholder value worth billions of dollars.”
A previous report from the organisation, a think tank which aims to align markets with climate reality, found that falling costs of electrical vehicles and solar technology could drive down demand in coal and oil from 2020.
He added: “The energy industry is entering an era of uncertainty.
“Technological developments and climate policy are combining to slow fossil fuel demand in a way that is unprecedented in the modern world, leading investors to call for businesses to be tested against scenarios that reflect higher levels of climate ambition.”
He said energy companies must be transparent and convince shareholders they are taking the risks associated with the shift to a low-carbon economy seriously.