Stranded Assets

April 17, 2023

Stranded assets are assets that have become obsolete or lost their economic value before the end of their expected life span, leaving investors or owners with assets that are no longer profitable or usable. In the context of climate change, stranded assets typically refer to fossil fuel assets, such as coal mines, oil reserves, and natural gas fields, that are at risk of becoming unprofitable due to the transition to a low-carbon economy.

The transition to a low-carbon economy is driven by efforts to reduce greenhouse gas emissions and limit global warming. This transition includes the deployment of renewable energy sources, energy efficiency improvements, and other measures to reduce carbon intensity in energy systems. As a result, fossil fuel assets, which are responsible for a significant share of global greenhouse gas emissions, are at risk of becoming stranded as demand for them declines.

Stranded fossil fuel assets can have significant economic implications, both for companies and for countries that rely heavily on fossil fuel exports. Companies may face financial losses or bankruptcy if they are unable to adapt to the changing market conditions, while countries may experience reduced government revenues and employment opportunities. By some estimates this can be as high as $20 Trillion. Trillions in Assets May Be Left Stranded as Companies Address Climate Change

To manage the risks associated with stranded assets, investors and companies can adopt strategies that focus on transitioning to a low-carbon economy and diversifying their investments into sustainable and renewable energy sources. Policymakers can also implement policies that support the transition to a low-carbon economy, such as carbon pricing, renewable energy incentives, and energy efficiency standards, to reduce the risk of stranded assets and promote sustainable economic growth.

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