The idea of a carbon bubble — the scenario in which fossil fuel-related investments become "stranded assets" as the world moves away from fossil fuels — has been gaining mainstream credence in recent months. From coal communities seeking help to transition from fossil fuels to vastly improved renewables that are competing directly with carbon emitting fuels, there are good reasons to question the idea that fossil fuel demand will continue to grow in the coming decades.

Still, I wasn't expecting the latest development in the carbon bubble story.

The new economics of oil

As reported over at The Guardian, oil giant BP has just admitted that some existing fossil fuel reserves are unburnable, and that some oil will have to remain in the ground if we are to have any hope of keeping global climate change within "safe" (which, at this point, really just means "less dangerous") limits. In a speech entitled The New Economics of Oil, the company's chief economist, Spencer Dale, endorsed the idea that even burning our existing, known reserves of oil, coal and gas would set us on course for catastrophic climate change. And that's even before we start talking about any new reserves that companies are still uncovering:

“Existing reserves of fossil fuels — i.e. oil, gas and coal — if used in their entirety would generate somewhere in excess of 2.8trn tonnes of CO2, well in excess of the 1trn tonnes or so the scientific community consider is consistent with limiting the rise in global mean temperatures to no more than 2C. And this takes no account of the new discoveries which are being made all the time or of the vast resources of fossil fuels not yet booked as reserves.”

Coal will go first

Dale's analysis does throw in some important caveats: coal is a more carbon-intensive fuel than oil or gas, so it's reasonable to assume that coal consumption will be hit hardest first. Dale also speculated that successful development of carbon capture and storage (CCS) systems could allow us to decouple fossil fuel burning from its associated emissions. Still, says Dale, oil companies (and everyone else) can no longer assume that oil prices will continue to rise as supply runs out.

This is what many observers have been saying for some time. While conventional wisdom said that prices would rise inexorably as we approached peak oil, the reality is looking rather different. At some point — and we may already be seeing this with Saudi Arabia refusing to curtail supply to drive up prices — producers will start competing over remaining market share of a potentially shrinking economic pie. That means lower prices. And lower prices mean some "unconventional" (read "more expensive") sources of fossil fuels (tar sands, shale, Arctic oil), may never see the kind of price-per-barrel that would justify the investment.

Energy players reposition themselves

As I wrote in a piece for sister site TreeHugger, there's a shift underway in the traditional dynamics of energy politics. While previously fossil fuel emitters like utilities, coal miners and oil companies were unified in their opposition to reducing carbon emissions, what we are increasingly witnessing is different interests trying to position themselves favorably for the inevitable transition to a low-carbon economy. That means oil companies pointing the finger at coal (see Dale's comments on coal above) and boosting their investments in natural gas and other energy sources. It means forward-thinking electric utilities embracing renewables and energy efficiency. And it means these same lower carbon utilities becoming increasingly interested in electrified transportation as a means to compete with oil.

Will oil majors invest in renewables?

The CEO of Royal Dutch Shell — a company that recently put its controversial plans to drill for new oil in the Arctic on hold — has just stated that solar will become the backbone of the energy economy. Given that less than a decade ago, the company dropped its investments in solar as unaffordable, it will be interesting to see if it now changes its course. In the meantime, Total Oil just announced plans to invest $500 million in renewables annually.

I have a feeling things are going to change in the energy industry — and fast.