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'Carbon bubble' risk to financial stability, MPs warn

Stock markets could be inflating a ‘carbon bubble’ by over-valuing companies with fossil fuel assets that will have to be left unburned in order to limit climate change, MPs have warned.

In a report, being launched in the City of London, the Environmental Audit Committee also points out that there is a large green finance gap.

Investments are currently running at less than half of the £200 billion needed in energy infrastructure alone by 2020 to deliver national and international emissions reduction targets.

Chair of the Environmental Audit Committee Joan Walley MP said: “The UK Government and Bank of England must not be complacent about the risks of carbon exposure in the world economy. Financial stability could be threatened if shares in fossil fuel companies turn out to be over-valued because the bulk of their oil, coal and gas reserves cannot be burnt without further destabilising the climate.

“The record-breaking extreme weather events causing chaos across the globe should be a wake-up call. The transition to a low carbon economy will be much more painful if we wait until there is a climate crisis before recognising that more than half of the world’s fossil fuel reserves will have to remain in the ground.”

The report points out that reducing fossil fuel investment in the short to medium term will depend on investors having confidence that the international community will agree a credible and significant commitment to reduce emissions.

The Committee calls on the Government to continue to play a central role in agreeing ambitious and binding international commitments on climate change, both in the EU and in the run up to the UN climate talks in Paris 2015.

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