Project

FoReSee- Fossil Resource Markets and Climate Policy: Stranded Assets, Expectations and the Political Economy of Climate Change

Start of Project 10/2018
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End of Project 09/2022

One likely consequence of climate policy is the rapid devaluation of fossil resource assets and of parts of the energy infrastructure (stranded assets). The owners of these long-lived capital assets have incentives to delay or even prevent the implementation of climate policy. The FoReSee project investigates how the danger of asset stranding and the reaction of asset owners influence the effectiveness of climate policies. The project develops policy measures that reduce the inertia of the energy system and quantifies distributional effects of different climate policies.

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Update on the project´s process

The perspectives for stranded assets on various levels are continuously evaluated with modelling and empirical approaches. After first completed and published stud-ies on the U.S. coal sector and European LNG assets, further analyses are ongoing on greenfield coal mining projects and on quantifying asset stranding in the global natural gas trade. Current studies assessing fossil fuel producers' profits at stake due to climate policies lead to particularly large estimates and require further assessment. Empirical analyses show that investors’ expectations do react to developments in climate policy, but do not (yet) affect the ‘green’ direction of innovation. Climate policy uncertainty, which can induce asset stranding increases with a higher income inequality and is influenced by competitive lobbying of owners of different fossil resources. Moreover, retaliatory trade sanctions implemented by a climate club with ambitious climate policies can yield counterproductive effects. Furthermore, climate policy measures and governance questions in resource-rich countries are investigated, such as the phase-out of gasoline subsidies and security policy in the Middle East.

Preliminary results of the project

One possibility to quantify the risk of asset stranding is to compare the asset utilization between several scenarios of future energy sector and climate policy developments. Indeed, there is high uncertainty how energy markets - globally and in the EU - will develop. Yet, in each scenario, the utilization of fossil assets will be different. Simply speaking, in a scenario with strong and early renewable expansion, existing fossil assets will become stranded soon. In constrast, a scenario with continuation of existing low ambition climate policies will see a further expansion of fossil fuel assets. The scenario cone visualizes the divergence between scenarios which grows the further we look ahead because uncertainty grows. 

Flagship-Paper

Ansari, D. und Franziska Holz (2019): Anticipating Global Energy, Climate and Policy in 2055: Constructing Qualitative and Quantitative Narratives. Energy Research & Social Science, Vol. 58, pp. 101250.

Sen, S. und M.-T. von Schickfus (2020): “Climate policy, stranded assets, and investors’ expectations”. Journal of Environmental Economics and Management 100, 102277, 10.1016/j.jeem.2019.102277.

Eisenack, K., Hagen, A., Mendelevitch, R., and Vogt, A. (2021) Politics, profits and cli-mate policies: How much is at stake for fossil fuel producers? Energy Research & Social Science, Volume 77.

Hagen, A., & Schneider, J. (2021). Trade sanctions and the stability of climate coali-tions. Journal of Environmental Economics and Management, 109, 102504.

Hauenstein, C. und Franziska Holz (2021): The U.S. Coal Sector between Shale Gas and Renewables: Last Resort Coal Exports? Energy Policy, Vol. 149, pp. 112097.
 

Interview with Prof. Dr. Franziska Holz on the project FoReSee

June 2021, German