Stranded Assets in the Transition to a Carbon-Free Economy

33 Pages Posted: 23 Jan 2020

See all articles by Rick van der Ploeg

Rick van der Ploeg

University of Oxford

Armon Rezai

Vienna University of Economics and Business

Date Written: 2019

Abstract

Assets in the fossil fuel industries are at risk of losing market value due to anticipated breakthroughs in renewable technology and governments stepping up climate policies in the light of the Paris commitments to limit global warming to 1.5 or 2 degrees Celsius. 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 a third of global warming since 1965, but also carbon-intensive industries such as steel, aluminium, 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.

Keywords: de-carbonisation, policy tipping, technology, stranded assets

JEL Classification: E620, F410, G110, O330, Q330, Q340, Q350, Q400, Q5

Suggested Citation

van der Ploeg, Frederick and Rezai, Armon, Stranded Assets in the Transition to a Carbon-Free Economy (2019). CESifo Working Paper No. 8025. Available at SSRN: https://ssrn.com/abstract=3523529

Frederick Van der Ploeg (Contact Author)

University of Oxford ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

Armon Rezai

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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