Image copyright SPL Image caption Reserves of oil and gas could rapidly become uneconomical to extract

A rapid reduction in demand for fossil fuels could see global economic losses of $1-4 trillion by 2035 according to a new report.

Energy efficiency and low carbon technology could cause the downturn, even if governments fail to take new steps to meet the Paris climate goals.

The resulting "carbon bubble" could cause losses larger than the 2008 financial crisis, the authors say.

The US and Canada would be the biggest losers, the study finds.

According to the International Energy Agency (IES), the world invested around $700bn in oil, gas and coal in 2016.

While there has been a growing movement for divesting from shares in fossil fuel companies in recent years, the sector still accounts for 6% of global stock markets and 12% in the UK.

Research has often focussed on how these investments would be affected if the world takes new action to limit the global rise in temperatures to well under 2C as agreed in Paris in 2015.

One recent study found that 20% of the world's power plant capacity could become "stranded assets" if the Paris goal was met.

But this new report looks at the impact of low carbon technology in renewable energy, the electrification of transport and greater efficiency in fuel use, on demand for fossil fuel irrespective of whether new climate policies are adopted or not.

They also include the impact of a rapid sell off, of oil and gas reserves by producing countries eager to get rid of the fuels before they become worthless.

Image copyright Getty Images Image caption The divestment movement has gained ground in recent years

The authors say that by 2035, $1 trillion dollars could be wiped off the global economy if no new actions to limit warming to less than 2 degrees are taken. This could rise to $4 trillion if new policies to restrict emissions further are set.

"You don't need to have anything for the stranding to happen, because what has already been done in the past is driving this phenomenon," Prof Jorge Viñuales, study co-author from Cambridge University, told BBC News.

"Many investors don't take the carbon bubble seriously, they say that climate policies won't be adopted, and if they are adopted they won't be tough and even if they are tough they won't be adopted anytime soon - what we are saying is, that doesn't matter."

The authors say that while there will be some significant losers, the overall impact on global GDP will likely be balanced with countries like Japan, China and the EU seeing employment grow along with their economies as their imports of fossil fuels will become much cheaper.

"It is potentially catastrophic for high cost producers," said Prof Jorge Viñuales.

"The US will suffer in all events, the same for Russia and Canada - they could improve their situation by moving away from investment in fossil fuels and trying to develop renewable energy."

Some scientists and investors believe that fossil fuels will continue to play a significant role and stranded assets can be avoided if technologies such as carbon capture and storage (CCS) can be developed and deployed. Other experts say this is a risky assumption.

"Many models assume that CCS will become cost competitive at some point, meaning that fossil fuels could still make up a part of a low-carbon energy mix - however it's not clear that the technology will ever become cost-competitive without a significant increase in current levels of investment," said Sini Matikainen, policy analyst at the Grantham Research Institute, who wasn't involved in the study.

"The authors also use a 2 degree scenario, so under the lower, more ambitious 1.5 degree target of the Paris Agreement, the losses from stranded assets could potentially be even larger than this paper suggests."

Other observers point out that in some parts of the world, the move away from fossil fuels has happened already

Image copyright SPL Image caption Protestors in the US have demanded an easing of environmental restrictions

"I think we are seeing this play out," said Shelagh Whitley from the Overseas Development Institute, who have been researching the link between stranded assets and coal fired power stations in India.

"We thought when we started this three years ago that this would play out over the next decade, it is already happening."

"In India, you have public banks saying they have to write down all sorts of assets on their books, there are all sorts of new policies coming into place, it is happening much more quickly than people imagined."

If action is taken soon, the carbon bubble can be deflated say the authors. A simple first step would be to require all corporations to disclose their exposure to stranded assets.

If the bubble isn't dealt with quickly, the disruption of fossil fuel production may lead to political upheaval, and the rise of populism. Something the authors fear may be happening already.

"We have not tested the link with populism in the study but my take is that this is why some administrations are relying on fossil fuel policies," said Prof Viñuales

"And they are winning and getting a strong electoral base because the people working in those sectors have suffered a lot already."

The study has been published in the journal Nature Climate Change.