How do GHG rules weigh on oil investments? New tool crunches the numbers

A new report aims to help investors better understand how their oil holdings may fare under stricter climate change rules.

The report Crude Oil Investing in a Carbon Constrained World was penned by analysts at ARC Financial, a private equity firm based in Calgary.

The paper is essentially a how-to guide for investors to crunch the numbers, based on publicly available research and models, that helps them decide whether it makes sense to put money into a given oil asset.

Co-author Jackie Forrest says a lot of big oil companies disclose their carbon costs, but it's hard to do a proper comparison because there's no uniform way to calculate those figures.

Earlier this week, the board of governors at the University of British Columbia rejected calls from students and faculty to divest fossil fuel holdings, instead promising to create a low-carbon investment fund.

Forrest says dismissing all fossil fuel investments oversimplifies the issue, adding that many assets can make good returns even with higher carbon costs.

But she says right now, investors are "basically in the dark."

"They understand that more stringent GHG (green house gas) policy is coming, but they don't have the tools to really rationally assess that. That's the problem we're trying to solve by putting this report out."

Lower carbonadvantage

One of the models ARC incorporates into its methodology was developed by researchers at the University of Calgary, Stanford University and the Carnegie Endowment for International Peace.

The paper published last year Know Your Oil: Creating a Global Climate Index compared the greenhouse gas emissions of 30 varieties of crude from around the world.

Although some oilsands varieties were at the higher end of the spectrum, some were in the middle of the pack.

"What's not well understood about crude oil is there's such a range of crude oil types and such a range of carbon intensities that go along with that," said Forrest.

"As long as there's going to be decent oil demand out there and we think there will be there will be a market for some crude oils and the ones that are lower carbon are going to potentially have a competitive advantage in this new world."