Vast ‘stranded assets’ if world continues investing in polluting industries

Continued investment in carbon-intensive industries will drastically increase the amount of “stranded assets” as the world moves to net-zero emissions, researchers warn.

The study assesses how much capital – the value of physical assets like buildings and, uniquely in this study, the value of workers – could be stranded (losing its value) if the world reaches net zero emissions in 2050.

Stranded assets could include a worker losing their job and future income as their industry declines, or a coal power station losing value as renewables take over.

The study – by Exeter and Lancaster universities – compares two scenarios to investigate how delaying the transition could affect the total capital value at risk accumulated by 2050: one where the world completely stopped investing in carbon-intensive industries in 2020, and another where this is delayed to 2030.

A complete switch-off from fossil fuel investment in 2020 would have left $117 trillion of global capital at risk – while delaying to 2030 raises this to $557 trillion (37% of total global capital today).

While these are the maximum possible figures – and they could be reduced by retraining workers and retrofitting assets – they highlight the vast economic risks from continued investment in declining industries.

“The longer we wait, the more disorderly the transition will be,” said Cormac Lynch, from the University of Exeter.

“An orderly transition would place communities in a good position to take advantage of new opportunities as the economy changes – while a disorderly one could put some areas at risk of post-industrial decline.”

Asked if the findings could support calls to delay or abandon net-zero policies, Daniel Chester from Lancaster University said: “The impacts of climate change itself are likely to be far more costly.

“And parts of the transition are happening already. For example, renewables like solar PV are already at cost-parity with fossil fuel equivalents, and electric vehicles are not far behind.

“What our research shows is that it makes practical sense, not just ethical sense, to embrace the transition now rather than resist it.”

“Instead of delaying the transition, policymakers should be transforming educational and financial systems – creating new opportunities, especially in regions dependent on fossil-fuel industries – to ensure communities are not left behind.”

The world must now cut carbon emissions at an unprecedented rate to meet the goals of the Paris Agreement, thereby limiting the worst effects of climate change.

This will inevitably create new economic opportunities but will also threaten the value of some existing occupations and physical assets, investments in which have been called a “carbon bubble”.

The researchers collated available data to estimate the makeup of the global stock of capital assets and their economic lifespans.

They then simulated the early retirement of these capital assets (e.g. buildings decommissioned earlier than expected or workers being made unemployed) necessary to achieve the net zero targets set by governments, comparing these outcomes to scenarios where they are allowed to retire at the end of their normal working life.

The paper, published in the journal Environmental Research: Climate and funded by the Economic and Social Research Council through the Rebuilding Macroeconomics network, is entitled: “Stranded human and produced capital in a net-zero transition.”