Experts estimate that oil platforms, pipelines, coal power stations, and other fossil fuel assets might lose billions of dollars in the fight against climate change in the coming decades.
The warning was delivered in a 3,000-page study by United Nations specialists, who said that fossil fuel assets must be decommissioned and replaced with renewable energy as soon as possible in order to prevent financial losses.
Because fossil fuel consumption must reduce in the near future to curb greenhouse gas emissions, such assets will become “stranded” and value less than planned.
Limiting warming to the Paris Agreement’s aspirational 1.5 degree Celsius target, or the more cautious 2 degree Celsius objective, “would strand fossil-related assets,” according to the U.N.’s Intergovernmental Panel on Climate Change (IPCC) in its newest report released Monday.
“The combined global discounted value of unburned fossil fuels and stranded fossil fuel infrastructure is projected to be around $1 trillion to $4 trillion from 2015 to 2050 to limit global warming to approximately 2 degrees Celsius, and it will be higher if global warming is limited to approximately 1.5 degrees Celsius,” the IPCC said.
Any effort to mitigate the effects of climate change necessitates the use of less fossil fuel, leaving assets outdated as corporations are pressed to shift away from destructive energy production.
According to the IPCC, if present oil, gas, and coal energy infrastructure were to function for their intended lifetimes — without technology to collect and store carbon – limiting global warming to 1.5 degrees Celsius would be unachievable.
It said that governments should totally phase out coal usage and reduce oil and gas use by 60% and 70%, respectively, by 2050 in order to meet the Paris Agreement targets, adding that solar and wind energy were already cheaper than fossil fuels in many locations.
The term “stranded assets” was coined in the 2010s by the think tank Carbon Tracker.
Government policies such as raising the price of coal or even outlawing some energy sources might have a further impact on businesses.
Other items, such as electric automobiles, may also be appealing to consumers.
Other assets that have been harmed include infrastructure such as drilling platforms, which have become inoperable faster than predicted.
Because of dropping prices, certain fossil fuel deposits will become too expensive to utilize.
According to the IPCC, coal-related assets are more susceptible before 2030 than oil and gas-related assets by mid-century.
The concept of stranded assets has gained traction among environmentalists and investors alike, and has been utilized at shareholder meetings of energy firms such as ExxonMobil and TotalEnergies.
The climate problem has, in fact, become essential to several businesses, although three decades after the establishment of the IPCC in 1988.
“It was actually the financial risk that ignited this flame, which took a long time,” Hugues Chenet, research associate at Polytechnique and the University College London, said.
This “convinced financial actors that a crisis existed.”
The concept of “stranded assets,” which Chenet likes to label “obsolete,” has enabled the identification of a “contradiction.”
There is one “route that says we must survive without fossil fuels while confronted with an economy that is more set up to achieve the opposite.”
Lucie Pinson of the NGO Reclaim Finance, who does not believe large firms like TotalEnergies’ climate promises are trustworthy, also pointed out the contradiction.
“We can tell that (TotalEnergies) does not believe in its own (climate) rhetoric, because if it did, it would not construct projects with no future,” she said.
It is decision time for nations that rely on fossil resources for income.
According to Carbon Tracker, oil companies from Azerbaijan to Angola to Nigeria and Saudi Arabia risk losing a large portion of their earnings over the next 20 years.
“If they continue to invest,” said Carbon Tracker’s Mike Coffin, “you’re betting on the failure of climate policy action, but you’re also betting on the failure of renewables and other low carbon technologies to replace oil and gas.”
Another dangerous play would be to disregard climate change action in order to benefit from oil and gas.
However, “you’ll lose a lot more on all your other assets when there are forest fires, worldwide migrations, and starvation,” he claims.
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