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1 Huge Sign That Fossil Fuels Are in Trouble

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How do you know when an idea that was once considered fringe has hit the financial mainstream? When Bloomberg starts including it on its terminals. And when some of the biggest companies in the world -- including ExxonMobil (NYSE: XOM  ) , BP (NYSE: BP  ) , and General Electric (NYSE: GE  ) -- start pricing it into their models.

This week, financial data and analytics provider Bloomberg launched its Carbon Risk Evaluation Tool, allowing more than 300,000 high-end traders to game out various scenarios showing how potential climate change regulation would affect individual stock prices. If you weren't thinking about the carbon bubble and the risk it poses to oil and coal stocks, you should now.

Stranded assets
The idea behind the carbon bubble is that fossil-fuel companies include hydrocarbon assets in their future valuation estimates. However, if global governments get serious about keeping global warming below 2 degrees Celsius -- the point at which scientists predict that the poop really hits the fan -- regulations will come into effect that make it economically unviable for companies to burn those hydrocarbons, rendering them "stranded assets." This could have a dramatic effect on companies with significant fossil-fuel reserves, particularly those that are already expensive to exploit.

Think that's ridiculous? Major companies such as ExxonMobil, BP, and General Electric are already assuming a carbon price in their financial modeling. They're doing so for purely pragmatic reasons -- they see carbon regulation as a foregone conclusion. Given that ExxonMobil and BP are among the world's top holders of hydrocarbon assets, and General Electric is a huge climate change solutions provider, they all have skin in this game.

In the following video, Fool contributor Sara Murphy offers further details about the carbon bubble and its implications.

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Read/Post Comments (4) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 07, 2013, at 4:48 PM, tigerade wrote:

    Fossil fuels are the technology that is most ripe for disruption right now. We've seen many technologies disrupted in our lifetime, I think this one is next. The idea that we would stick with fossil fuels just because a certain political faction loves them is ridiculous. Do we really want to endanger human health and prosperity for the next few centuries? I don't think so. Divest from your fossil fuel stocks today. The carbon bubble is going to pop.

  • Report this Comment On December 07, 2013, at 4:57 PM, iamgarce wrote:

    humans and their companies have already proven

    adaptability , innovation and abilities to change or

    evolve .

    On the matter of carbon bubble ....

    1) there are bound to be tech changes that

    will allow hydrocarbons to be burned and exhaust

    sent through a converter to reduce the emissions

    to something like water vapor .. problem here is

    that it will add costs .

    2) crude oil is refined into thousands of products ,

    and only a few are burned for energy . Less demand for liquid fuels from gas/oil will mean more raw

    materials for many other products and pave the

    way for new products ... this will happen as

    alternate energies grow .

    I don't believe that carbon footprint regulations

    will hurt oil and gas companies in the long

    run, but could certainly raise havoc along the

    way .

    This is NOT a doomsday scenario . The managing

    of carbon emissions will occur rather slowly ,

    over time , unless exuberant governements

    try to speed up the process , in which case

    there will be a period of intense pain for

    oil companies , but they will persevere and

    reinvent themselves ... garce

  • Report this Comment On December 08, 2013, at 1:34 PM, verbatim613 wrote:

    Fossil fuels are not in trouble. And any "trouble" they may be having is the government and bureaucrats getting in the way of innovation and drilling with this alleged "global warming" hysteria and confiscatory "carbon taxes".

    If the government would get out of the way, we could drill, drill, drill. America has more reserves that OPEC.

  • Report this Comment On December 08, 2013, at 2:27 PM, popeye1250 wrote:

    But who's in favor of this? Not The American People!

    You have (maybe) 4-5% who make all the noise, just like "amnesty" for illegal aliens.

    Hopefully President Snow will be impeached after the Dems lose the senate in '14 and we can get rid of his nonsense.

    We really do need to have a constitutional convention that excludes anyone in public office at the federal level. I'm more interested in what a Plumber thinks than a Senator.

    We need to reduce greatly the powers of the presidency. I'd be happy with hiring a Manager for a 4 year contract to run the country and have a "President" as a figurehead like in England and "royalty." Send them to different countries as a good will ambassador but, WITH NO CHECKBOOK!

    As for adhereants of The Church of Climatology they should be required to wear beanies with propellers on top when in public so we know who they are.

    That is all.

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