10/29/2013 02:09 pm ET Updated Jan 23, 2014

The Carbon Bubble, Carbon Budget and Canada's Tar Sands

It's hard to know when a once radical idea goes mainstream, but we're probably at that point with the carbon bubble. If you're unfamiliar with the term here's a quick definition. Basically, the carbon bubble is the idea that fossil fuel companies are overvalued because if and when the world ever gets serious about dealing with the climate crisis, the fossil fuel companies won't be able to burn their carbon reserves, from which they derive their value.

Bill McKibben wrote about this idea last year in Rolling Stone, in an article that went strangely viral. In fact, the article got more hits than the Justin Bieber profile that appeared in the same edition of the magazine. Clearly this idea is hitting a nerve.

It's not just environmentalists that are pushing this idea. The World Bank, London School of Economics and the International Energy Agency -- all not exactly hippy outfits -- have put out warnings about a carbon budget, the upper limit of how much carbon we can burn and have a reasonable chance of not raising global temperatures more than 2 degrees C, a target that every country, including Canada, has agreed is the red line that we shouldn't cross.

The carbon budget creates the carbon bubble. The idea of carbon budget received a boost a few weeks back when the Intergovernmental Panel on Climate Change (IPCC) sounded the alarm for immediate action on climate change and the necessity for keeping much of known fossil fuel reserves in the ground. The IPCC is made up of 2,000 of the top climate scientists in the world. If they say there is a budget, we ought to listen.

The budget is about 565 gigatons of CO2 (A gigaton is a billion tons). That sounds like a lot, and it is. The problem is we are blowing through about 31GtCO2 a year, meaning we will spend our budget in about 15-25 years.

Here's where Canada and the tar sands come in. Calculations performed by, using industry filings and commonly accepted carbon accounting, show that the tar sands industry's 170 billion barrels of economically viable proven reserves are estimated to take up about 17 percent of the world's remaining carbon budget, or about 1/6 of what we have left to burn.

When you stop to think about it, that's a big, big problem for Canada, the financial markets, and the world's climate system. For Canada, it means that an over-reliance on the tar sands as an economic drive is a huge risk if the world ever regulates greenhouse gas emissions. It doesn't make a ton of sense to build your economy around a product that can't be sold or used.

For the markets, it means that companies that are heavily invested in the tar sands could be hugely over-valued, and therefor an existential threat to the economy. Suncor, TransCanada, and Shell are all betting big, along with Harper, that the world will never deal with the climate crisis. That'a a bad bet if you care about the stability of the markets.

And for the world, there must be a reckoning between physics and business as usual. Physics, who is undefeated to date, is telling us that we can only burn so much carbon and stay below our safe limit. Business as usual, championed by global conglomerates like Exxon and Chevron, are banking on us not getting serious about saving the planet.

Who will win just might determine the fate of the climate -- and our economy.