--> --> Climate Risk and the Fossil Fuel Industry
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AAPG Annual Convention and Exhibition

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Climate Risk and the Previous HitFossilNext Hit Previous HitFuelNext Hit Industry


Burning coal, oil and natural gas is responsible for two-thirds of the world's emissions of greenhouse gases. These same fuels also represent the economic mainstay of resource-rich countries and the world's largest firms. Any steps humanity takes to reduce climate-warming emissions will damage commercial opportunities. Relief for the climate means danger for the Previous HitfossilNext Hit Previous HitfuelNext Hit business. Given the stakes, it bears asking: What, exactly, are the risks? How are they manifested and distributed? This paper compiles emerging literature on climate risk and differentiates among risk types affecting Previous HitfossilTop fuels. The paper also distinguishes among relative risk exposure levels for coal, oil and natural gas businesses. Categories of climate risk include “policy risk” or action by governments to reduce carbon emissions; “demand risk” or declines in demand due to climate factors; “divestment risk” due to shareholder activism; and “competition risk” or rivalry among producers seeking to monetize reserves before they are rendered unburnable. The paper finds that the risk burden across the sector—for firms dealing in coal, oil, and natural gas—is not shared uniformly. While much of the focus has been on oil companies and countries harboring large oil reserves, the most damaging effects have fallen upon businesses based on coal. At the other end of the spectrum, the natural gas industry will continue to benefit from climate action.