Fossil Fuels Might Be an Investment Bubble Too

Climate change is coming for all of us, whether we like it or not. It won't just disrupt the weather or make certain locales unlivable — it's also set to shake our financial foundations. In fact, within 20 years, it could burst an industry bubble that's been unstoppable since the 19th century.

Economists from universities in the U.K., the Netherlands, and Macau have just released a meticulously researched model of the fossil fuel industry over the next two decades. In it, renewable energy has become so mainstreamed that industries like oil simply are no longer needed. Supply far exceeds demand, and the "carbon bubble" bursts.

Sounds like a green vision of the future gone right, if you're a staunch environmentalist. Unfortunately, it could also zero out whole economies and plunge the world into economic chaos. "According to the study, the equivalent of between one and four trillion US dollars could be wiped off the global economy in fossil fuel assets alone," per a press release. "A loss of US$0.25 trillion triggered the crash of 2008 by comparison."

Okay, okay — big claims for the far future, and totally catastrophic at that. What does it mean for you right now? After all, it's just a prediction, albeit a highly sophisticated one based on available data. But it is as good as reminder as any that a sound investment policy at any scale includes diversification. These researchers recommend moving away from fossil fuels now, if you have any in your portfolio; if nothing else, they suggest that oil companies and money managers offer an asset risk analysis that includes their findings.

For the ordinary investor, however, do your research and spread your risk around. You may not have to worry about the investment equivalent of a disaster movie, but a judicious look at the long view always helps.