Climate Policy, Stranded Assets, and Investors' Expectations

91 Pages Posted: 27 Nov 2019

See all articles by Suphi Sen

Suphi Sen

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Marie von Schickfus

CESifo (Center for Economic Studies and Ifo Institute)

Date Written: 2019

Abstract

Climate policies to keep global warming below 2℃ might render some of the world's fossil fuels and related infrastructure worthless prior to the end of their economic life time. Therefore, some energy-sector assets are at risk of becoming stranded. This paper investigates whether and how investors price in this risk of asset stranding. We exploit the gradual development of a German climate policy proposal aimed at reducing electricity production from coal and analyze its effect on the valuation of energy utilities. We find that investors take stranded asset risk into consideration, but that they also expect a financial compensation for their stranded assets.

Keywords: stranded assets, climate policy, expectations, utilities, event study

JEL Classification: Q350, Q380, G140

Suggested Citation

Sen, Suphi and von Schickfus, Marie, Climate Policy, Stranded Assets, and Investors' Expectations (2019). CESifo Working Paper No. 7945. Available at SSRN: https://ssrn.com/abstract=3490409

Suphi Sen (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Marie Von Schickfus

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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