Investors and Stranded Asset Risk: Evidence from Shareholder Responses to Carbon Capture and Sequestration (CCS) Events

32 Pages Posted: 12 Dec 2016

See all articles by John W. Byrd

John W. Byrd

University of Colorado at Denver

Elizabeth S. Cooperman

University of Colorado Denver

Date Written: December 10, 2016

Abstract

As evidence for climate change mounts, the case gets stronger for not developing a large portion of existing fossil fuel reserves, particularly for coal as the highest emitter of CO2 per unit of energy produced. To avoid catastrophic climate change effects, reserves may become unburnable (i.e. “stranded assets”) posing significant risk to fossil fuel investors. Technology in the past has come to the rescue, so investor valuations may depend on investor perceptions for the success of technology in reducing stranded asset risk. We examine whether coal company shareholders perceive coal as such a technologically stranded asset by studying shareholder reactions to news about CCS (carbon capture and sequestration) technology breakthroughs and setbacks. We find a significant positive stock price reaction to CCS breakthroughs, but no reaction for CCS setbacks. The results suggest that investors have embedded stranded asset risk into their valuations, but also recognize the significance of CCS technology development and deployment for the economic prospects of the coal industry.

Keywords: Climate Change, Coal, Stranded Assets, Carbon Capture and Sequestration Technology, Pricing Climate Risk

JEL Classification: G14, Q51, Q54, Q58

Suggested Citation

Byrd, John W. and Cooperman, Elizabeth S., Investors and Stranded Asset Risk: Evidence from Shareholder Responses to Carbon Capture and Sequestration (CCS) Events (December 10, 2016). Available at SSRN: https://ssrn.com/abstract=2883624 or http://dx.doi.org/10.2139/ssrn.2883624

John W. Byrd

University of Colorado at Denver ( email )

Department of Finance
Denver, CO
United States
970-247-9182 (Phone)

Elizabeth S. Cooperman (Contact Author)

University of Colorado Denver ( email )

Campus Box 165, P.O. Box 173364
Denver, CO 80217
United States
303-315-8422 (Phone)
303-315-8084 (Fax)

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