As has been argued by some of the edgier economists out there, it could probably be said that modern economies are, more than anything else, in the business of creating bubbles. One of the largest ones out there currently is the "carbon bubble" -- which is, via other actions as well, currently being inflated into epic proportions with the aid of fossil fuel companies via the overestimation of the economic viability of many " fossil fuel reserves."
Former US Vice President and 2015 Zayed Future Energy Prize Lifetime Achievement Award winner All Gore recently went off on just this subject, even going so far as to warn that the implosion of this bubble could have an even more deleterious effect on the economy than the 2008 subprime mortgage crisis did. Interestingly and humorously, he also characterized the current very optimistic appraisal of many remaining fossil fuel reserves as "absurd" delusions.
"We have used the phrase sub-prime carbon assets as a conscious reference to sub-prime mortgages," Gore stated. "Because there is a certain unreality to the assumption that the proven reserves on the books of these companies -- $7 trillion in public multinationals, another $14 trillion owned by sovereigns -- are all going to be burned. They are not."
No argument there. There's a lot of incentive there for companies to lie about the economic viability of "their" reserves, and for countries to do so as well.
Gore also noted that fossil fuel companies were arguably wrong to dismiss warnings about stranded assets by arguing that governments would fail to follow through on publicly stated pushes towards stronger emissions regulations.
"Whether (or not) there are governmental policies put in place to limit emissions, there are multiple pathways to stranding: the downward cost curve for renewables is another (pathway), the pressure from investors, the pressure from students at universities like Oxford, there are many reasons," Gore continued.
That's certainly true. The exact factors that can play into the implosion of a bubble are complex and unpredictable. But denial on the other hand, is always the same I suppose, isn't it?
A point that Gore noted: "During the sub-prime mortgage crisis there was a mass delusion that in the US 7.5 million mortgages given to people who didn't make down-payments and couldn't make monthly payments were going to be good risks. It was absurd. But it is even more absurd to base the value of equities in companies that have these proven reserves on the assumption the stated book value is accurate -- it's not. When does it collapse? We have no idea. Will it collapse? Yes, it will. When that realization takes hold the mass delusion will be punctured and the assets will be stranded."
When is always the real question to be asked? In this case, I'm expecting some of the larger impacts to arrive within the next few years. To those that have the option to do so now, divestment from fossil fuels might be a good idea.