United States investors are not naive when it comes to
their investments in oil and gas coverage, instead basing their
''rational expectations'' for future cash flows on all possible
scenarios, a new study says.
The collaboration between the University of Otago and the
University of California, Davis, suggests US investors are
not ''particularly worried'' about the effect on the value of
their investment following media coverage and concern about a
potential carbon asset stock price bubble that may cripple
Otago University accounting professor David Lont said
investors in companies, which included Anadarko - a company
undertaking significant exploration in New Zealand, including
off the Otago coast - had not ignored the science when
considering whether the potential carbon asset stock prices
constituted a bubble, a concern raised in recent media
Prof Lont co-led the study called ''Science and the Stock
Market: Investors' Recognition of Unburnable Carbon''.
The study provided market evidence rejecting the prediction
there was a carbon bubble about to burst, he said.
''Many are saying the reason why these stocks continue to
remain largely unaffected by these scary predictions is
because investors don't understand the carbon bubble and
investors could get stranded. But our study suggests
investors aren't that naive and they hold a different, more
Researchers found there was limited negative effect on stock
prices of fossil-fuel companies following 88 stories from 59
print media outlets, most in 2012 and 2013, and an initial
story in 2009 published in the scientific journal Nature.
Those scientific disclosures, reported widely, found only a
fraction of the world's oil, gas and coal reserves could be
emitted if global warming by 2050 was not to exceed 2degC
above pre-industrial levels, Prof Lont said.
Subsequent media stories suggested the value of burnable
carbon reserves held by big oil and gas companies could
diminish rapidly as alternative energy resources replaced
Under a scenario offered by former US vice-president Al Gore
and others, climate change regulations could force
fossil-fuel companies to leave large reserves of oil, gas and
coal in the ground untouched, in order for the world to avoid
''The companies' oil and gas reserves, which are a large
component of their assets and market value, could be stranded
as `unburnable' and potentially worthless.''
The researchers analysed market behaviour related to 63 US
oil and gas stocks trading on the major US exchanges. Most of
them disclosed significant oil and gas reserves in their
As a result, there was a higher likelihood those companies'
stock prices might be affected by perceptions of investors
about the consequences of unburnable carbon.
Each media story was considered a separate event that could
potentially affect stock prices and researchers measured the
The researchers found that US oil and gas stock prices
dropped about 2% after the original 2009 story in Nature - a
total value of $US27 billion ($NZ32.6 billion) - a
comparatively small reaction, considering the value of the
companies, Prof Lont said.
Researchers concluded that ensuing widespread coverage in
other media had little impact on the stock price of oil and
gas companies which dipped by a half percent collectively.
''Our finding suggests some commentators may be overstating
the effect of unburnable carbon on the value of oil and gas
investments. It's essential that the media and commentators
reported by the media interpret accurately the meaning of
results from science.''
Prof Lont said several possibilities might help understand
the limited market response to the science information.
Investors might feel carbon capture could play an important
role to reduce emissions; also tax incentives/costs could be
created to mitigate the cost of change for oil and gas
Two of the study's co-authors, Paul A. Griffin and Amy Myers
Jaffe, from the UC Davis Graduate School of Management, say
the study tries to set the record straight.
Mr Jaffe, a global expert on energy policy, geopolitical
risk, and energy and sustainability, said the important
energy policy issue needed a full debate and additional
analysis, so pension funds did not simply dump their oil and
gas company investments for the wrong reasons.
He was attending special energy sessions at the annual
meeting of the World Economic Forum from January 22-25 in
''Investors will also be assessing the probability of
governments agreeing to effective carbon reduction policies
in a timely manner and they will assess the difficulty of
paring back the demand within an economically meaningful
horizon, regardless of the need to lessen carbon emissions.
''The limited investor-impact of science disclosures could
also be explained by the dearth of information in companies'
financial statements,'' Mr Jaffe said.
Prof Lont said carbon stranding might still occur in cases of
the less clean alternatives, such as coal. The authors noted
they could not rule out the possibility of a carbon bubble.
Drastic action by governments and regulators such as a
prohibition on fossil fuel production on a global basis, or
the imposition of a very strict cap on global carbon
emissions within the framework of a workable carbon market,
might be two such long-tail events that could burst a