Power sector asset stranding effects of climate policies

Saygin, Deǧer; Rigter, Jasper; Caldecott, Ben; Wagner, Nicholas; Gielen, Dolf

doi:10.1080/15567249.2019.1618421

Cited by 32 publications

(18 citation statements)

References 32 publications

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“…Stranded assets depend on a variety of factors and are estimated in the literature using different approaches. Following several recent studies [40][41][42][43][44][45][46], we use unrecovered capital cost as a measure of stranded asset. Calculations in the literature typically use either physical or economic lifetimes; we use physical (i.e.…”

Section: Stranded Asset Calculationsmentioning

confidence: 99%

Quantifying the regional stranded asset risks from new coal plants under 1.5 °C

Edwards

Cui

Bindl

et al. 2022

Environ. Res. Lett.

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Momentum to phase out unabated coal use is growing globally. This transition is critical to meeting the Paris climate goals but can potentially lead to large amounts of stranded assets, especially in regions with newer and growing coal fleets. Here we combine plant-level data with a global integrated assessment model to quantify changes in global stranded asset risks from coal-fired power plants across regions and over time. With new plant proposals, cancellations, and retirements over the past five years, global net committed emissions in 2030 from existing and planned coal plants declined by 3.3 GtCO2 (25%). While these emissions are now roughly in line with initial Nationally Determined Contributions (NDCs) to the Paris Agreement, they remain far off track from longer-term climate goals. Progress made in 2021 towards no new coal can potentially avoid a 24% (503 GW) increase in capacity and a 55% ($520 billion) increase in stranded assets under 1.5οC. Stranded asset risks fall disproportionately on emerging Asian economies with newer and growing coal fleets. Recent no new coal commitments from major coal financers can potentially reduce stranding of international investments by over 50%.

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Section: Stranded Asset Calculationsmentioning

confidence: 99%

Quantifying the regional stranded asset risks from new coal plants under 1.5 °C

Edwards

Cui

Bindl

et al. 2022

Environ. Res. Lett.

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“…Research has been conducted on systematically valuing the loss of assets due to stranding. Mercure et al (2018) estimate losses of $1 tn–$4 tn in the fossil fuel sector in the period 2016–2035 under various scenarios including the current trajectory of low‐carbon technology without additional policy measures, while $0.927 tn of power sector asset stranding up to 2050 was found in a bottom‐up assessment by Saygin, Rigter, Caldecott, Wagner, and Gielen (2019). One of the most cited works in this area is in the gray literature: for the IEA's Below 2 Degree scenario, Carbon Tracker and UNPRI estimate one‐third of business as usual investments into oil and gas, or $1.6tn, would be stranded in the period 2018–2025 (Carbon Tracker & UNPRI, 2018).…”

Section: A Model and Classification Of Low‐carbon Transition Risksmentioning

confidence: 99%

Low‐carbon transition risks for finance

Semieniuk

Campiglio

Mercure

et al. 2020

WIREs Climate Change

198

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The transition to a low‐carbon economy will entail a large‐scale structural change. Some industries will have to expand their relative economic weight, while other industries, especially those directly linked to fossil fuel production and consumption, will have to decline. Such a systemic shift may have major repercussions on the stability of financial systems, via abrupt asset revaluations, defaults on debt, and the creation of bubbles in rising industries. Studies on previous industrial transitions have shed light on the financial transition risks originating from rapidly rising “sunrise” industries. In contrast, a similar conceptual understanding of risks from declining “sunset” industries is currently lacking. We substantiate this claim with a critical review of the conceptual and historical literature, which also shows that most literature either examines structural change in the real economy, or risks to financial stability, but rarely both together. We contribute to filling this research gap by developing a consistent theoretical framework of the drivers, transmission channels, and impacts of the phase‐out of carbon‐intensive industries on the financial system and on the feedback from the financial system into the rest of the economy. We also review the state of play of policy aiming to protect the financial system from transition risks and spell out research implications. This article is categorized under: Climate Economics > Economics and Climate Change

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“…This is a far-reaching concept capturing the effect of climate-related factors on value across geographies, sectors and asset classes to communicate the risk of devaluation under stringent climate policy and carbon budgets (Caldecott et al , 2013; Caldecott, 2017). Saygin et al (2019), for example, estimated the cumulative value stranded assets for existing and pipelined power sector assets across the G20 to be US$1.56tn up to 2030 in a Delayed Policy scenario, or US$792bn in a Renewable Energy Roadmap scenario aligned to compliance with Paris Agreement carbon budgets.…”

Section: Literature Reviewmentioning

confidence: 99%

Climate risk disclosure and climate risk management in UK asset managers

Greenwood

Warren

2022

IJCCSM

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Purpose Framed within global policy debates over the need for private financial flows to align with the capital requirements of the Paris Agreement, this paper examines UK asset managers in their approaches to disclosing and managing climate risk. This paper identifies and evaluates climate risk management practices among this under-researched investor group in their capacity to address fundamental behavioural obstacles to low-carbon investment. Design/methodology/approach This paper takes an inductive approach to document analysis, applying content and thematic analysis to the annual disclosures of the 28 largest UK asset managers (by assets under management), including the investment management arms of insurance and pension companies. Findings The main takeaway from this research is that today’s climate risk management strategies hold potential to effectively address traditionally climate risk-averse investor behaviour and investment processes in the UK asset management context. However, this research finds that the use of environmental, social and governance (ESG) investment strategies to mitigate climate risks is a “grey area” in which climate risk management practices are undefined within broad sustainability and responsible investment agendas. In doing so, this paper invites further research into the extent to which climate risks are considered in ESG investment. Originality/value This paper contributes to research in sustainable finance and behavioural finance, by identifying the latest climate risk management techniques used among UK-headquartered asset managers and uniquely evaluating these in their capacity to address barriers to low-carbon investment arising from organisational behaviours and processes.

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Power sector asset stranding effects of climate policies

Cited by 32 publications

References 32 publications

Quantifying the regional stranded asset risks from new coal plants under 1.5 °C

Quantifying the regional stranded asset risks from new coal plants under 1.5 °C

Low‐carbon transition risks for finance

Climate risk disclosure and climate risk management in UK asset managers

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