Oil rigs, pipelines, coal-fired power plants and other fossil fuel assets could lose trillions of dollars in the fight against climate change over the next few decades, experts say.
The warning was issued in a 3,000-page report by UN experts who said fossil fuel assets must be removed and replaced with clean energy faster to mitigate financial losses.
These assets will become “stranded” and have less value than expected as they may never be used as demand for fossil fuels must drop in the near future to limit greenhouse gas emissions.
Limiting warming to the ambitious 1.5 degrees Celsius target in the Paris Agreement, or the more conservative 2C target, “will lock in fossil-related assets”, the Intergovernmental Panel on Climate Change said on Monday. United Nations Climate Change (IPCC) in its latest report.
“The combined global present value of unburned fossil fuels and locked up fossil fuel infrastructure has been estimated at around $1-4 trillion from 2015 to 2050 to limit global warming to around 2°C and it will be higher if the Global warming is limited to around 1.5C,” the IPCC said.
Any initiative to mitigate the impact of climate change involves using less fossil fuels, thus rendering assets obsolete, as companies are under pressure to move away from harmful energy production.
The IPCC has said that if current oil, gas and coal energy infrastructure were to operate for its expected lifetime, without technology to capture and store carbon, it would be impossible to cap global warming at the 1 .5°C.
He said nations would have to stop burning coal altogether and cut oil and gas consumption by 60 and 70 percent respectively by 2050 to stay within the Paris agreement targets, noting that solar and l Wind power was now cheaper than fossil fuels in many places.
The idea of “stranded assets” dates back to the 2010s and was put forward by think tank Carbon Tracker.
Companies could be further affected by government decisions such as the increase in the price of coal or even the banning of certain energy sources.
Consumers could also turn to other products such as electric vehicles.
Other assets affected include infrastructure such as drilling rigs, which have become unusable faster than expected.
Some fossil fuel reserves will become too expensive to exploit due to lower prices.
– Risky bets –
For the IPCC, coal-related assets are more vulnerable before 2030 than those related to oil and gas around the middle of the century.
The idea of stranded assets, taken up by both environmentalists and investors, has gained popularity and has been used in shareholder meetings of energy companies such as ExxonMobil or TotalEnergies.
The climate issue has indeed become central for some companies, even if it took three decades after the creation of the IPCC in 1988.
“It was really the financial risk that originally created this spark, which took a long time,” explains Hugues Chenet, associate researcher at Polytechnique and University College London.
This “convinced the financial players that there was a problem”.
The notion of “stranded assets”, which Chenet prefers to describe as “obsolete”, has made it possible to point out a “contradiction”.
There is a “way that says we have to live without fossil fuels, in the face of an economy that is rather more willing to do the opposite”.
Lucie Pinson of the NGO Reclaim Finance, which does not find the climate commitments of large companies like TotalEnergies credible, also pointed to the inconsistency.
“We see that (TotalEnergies) does not believe in its own (climate) rhetoric, because if it believed in it, it would not develop projects without a future,” she added.
– Loss of income –
This is decision time for countries that derive income from fossil fuels.
From Azerbaijan to Angola to Nigeria to Saudi Arabia, oil producers stand to lose a significant chunk of their revenue over the next 20 years, Carbon Tracker has warned.
But “if they continue to invest, you’re betting on climate policy action failing, but you’re also betting on renewable energy and other low-carbon technologies failing to replace oil and gas,” said Mike Coffin of Carbon Tracker, which urges countries to diversify.
Another risky bet would be not to act against climate change, hoping to profit from oil and gas.
But “you will lose a lot more on all your other assets when you have wildfires, global migrations, famine,” he said.