People in US and UK face huge financial hit if fossil fuels lose value, study shows

Individuals in rich countries face huge financial losses if climate action slashes the value of fossil fuel assets, a study shows, despite many oil and gas fields being in other countries.

The researchers estimated that existing oil and gas projects worth $1.4tn (£1.1tn) would lose their value if the world moved decisively to cut carbon emissions and limit global heating to 2C. By tracking many thousands of projects through 1.8m companies to their ultimate owners, the team found most of the losses would be borne by individual people through their pensions, investment funds and share holdings.

The analysis also found that financial institutions have $681bn of these potentially worthless assets on their balance sheets, more than the estimated $250-500bn of mispriced sub-prime housing assets that triggered the 2007-08 financial crisis.

But the proportion is much higher in the US and UK, where individuals own 86% and 75% of the potentially stranded assets respectively. In contrast, 80% of those assets in China are owned by the government.

The countries hit hardest by losses in the financial sector would be the US, with $283bn at risk, and the UK ($98bn), both far above the third-placed nation, the tax haven of the British Virgin Islands ($28bn). Canada and Australia are in the top six. About 90% of the risk in the UK is due to ownership of oil and gas assets in other parts of the world.

Companies in the Middle East do not have such high losses in the 2C scenario because some oil and gas will continue to be used and they are the cheapest suppliers.

Semieniuk said the $681bn of potentially worthless oil and gas assets on the balance sheets of financial institutions was large compared with the sub-prime housing assets that led to the 2007-08 financial crash.