Stranded assets in the transition to a carbon-free economy

Frederick van der Ploeg, Armon Rezai

Research output: Contribution to JournalReview articleAcademicpeer-review

Abstract

Assets in the fossil fuel industries are at risk of losing market value due to unanticipated breakthroughs in renewable technology and governments stepping up climate policies in light of the Paris commitments to limit global warming to 1.5 or 2°C. Stranded assets arise due to uncertainty about the future timing of these two types of events and substantial intertemporal and intersectoral investment adjustment costs. Stranding of assets mostly affects the 20 biggest oil, gas, and coal companies who have been responsible for at least one-third of global warming since 1965, but it also affects carbon-intensive industries such as steel, aluminum, cement, plastics, and greenhouse horticulture. A disorderly transition to the carbon-free economy will lead to stranded assets and legal claims. Institutional investors should be aware of these financial risks. A broader definition of stranded assets also includes countries reliant on fossil fuel exports and workers with technology-specific skills.

Original languageEnglish
Pages (from-to)281-298
Number of pages18
JournalAnnual Review of Resource Economics
Volume12
DOIs
Publication statusPublished - 6 Oct 2020

Keywords

  • Decarbonization
  • Policy tipping
  • Stranded assets
  • Technology

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