The International Energy Agency acknowledged last year, that with the absence of carbon capture and storage technology, more than two-thirds of coal, oil and gas reserves could not be burnt before 2050 if we were to have a 50% chance of limiting global warming to 2°C.

Currently, the global stock of fossil fuel reserves is equivalent to 2,860 gigatonnes of carbon dioxide (GtCO2). To increase the odds to an 80% chance of achieving the target, The Climate Institute, Carbon Tracker with the Grantham Research Institute at the London School of Economics have estimated a global carbon budget between 500GtCO22 and 900GtCO2. This includes emissions from oil, gas and coal.

If coal globally is allocated 40% of these budgets, its current share of global fuel combustion emissions, this gives a global coal carbon budget of 200–360GtCO2.

Australian coal reserves owned by listed companies are equivalent to 51GtCO2, which would be 15-25% of the global coal carbon budget to 2050. Applying the conservative estimate that just 50% of Australia’s listed coal resources are exploited equates to 42-75% of the global coal carbon budget over the same period.

The report, Unburnable Carbon: Australia’s carbon bubble, follows Carbon Tracker’s recent global analysis, which confirmed that for there to be an 80% chance of achieving internationally agreed targets of limiting global warming to 2°C, just 20-40% of existing coal, gas and oil reserves could be burnt.

An increasing number of countries that import Australian coal, in particular China, are tightening their belts on coal use. China has implemented an Emissions Trading Scheme for seven key provinces scheduled to begin in mid 2013 and is now the number one renewable energy market worldwide.

This means that investments into Australian coal that may seem sound at the moment could easily turn into stranded assets that cannot be sold in a world acting on climate, with the cost of alternative energy falling.

The significance of Australian coal for investors goes beyond its own shores, with more Australian coal reserves owned by companies listed outside Australia - especially in London and Tokyo – than by those listed domestically.

“Australian and overseas investments in Australian coal rest on a speculative bubble of climate denial, indifference or dreaming,” said John Connor, CEO of TCI. “Investors, governments and even some coal companies say they take climate change seriously, but this report shows they do not or are taking risky gambles.”

Carbon Tracker Research Director James Leaton added, “Investors need to challenge the assumption that coal demand will continue to rise in China and elsewhere, otherwise billions of dollars of taxpayer, superannuation and shareholder funds will be wasted in assets linked to unburnable carbon.”

“The fundamentals of demand and price show that investors around the world could get caught in a carbon bubble; analysts and regulators need to make this risk transparent, otherwise the markets will continue to inflate it.”

Key findings from the report include:

Applying Australia’s market share to the precautionary global carbon budget for coal means Australian reserves are already more than double that amount with more extraction planned;

A conservative estimate of all the potential Australian coal resources is 150 GtCO2, which is as much as 75 per cent of the global coal carbon budget to 2050;

Australian coal is becoming less competitive, given its high cost operations in a highly competitive market. Expansion beyond the 11% market share is highly unlikely; and

Last year Australian listed companies spent an estimated $6 billion on developing more coal reserves.

To access the report and other related material click

here.