The Citi banking group has issued a warning to investors that Australia's huge coal industry is a speculative bubble ripe for financial implosion if the world's governments fulfill their commitments to act on climate change.

The banking giant warned that fossil fuel companies can do little to avoid future loss of shareholder much of Australia's coal reserves become worthless when the world hits carbon emission limits.

John Connor, one of the report's authors and Chief Esecutive Officer of The Climate Institute said that "Investments in Australian coal rest on a speculative bubble of climate denial, indifference or dreaming. Investors, governments and even some coal companies say they take climate change seriously" but, far from cutting back on exploration for new coal reserves, Australian listed companies spent $6 billion on developing new deposits. If only half of its potential future reserves were to be exploited, Australian coal would use up 75% of the global carbon budget for the fuel.

Australia is banking on selling coal to China. But, after years of strong growth, China has indicated that its coal use will peak in the next five years. This is not being taken into account by coal companies, shareholders or governments. As a result, billions of dollars of taxpayer, superannuation and shareholder funds are being wasted on assets linked to unburnable carbon.