A report from the UK Sustainable Investment and Finance Association warns that the global push for decarbonization could result in $2.3 trillion in stranded oil and gas assets by 2040.
The report highlights that the UK faces a particularly high risk, with potential losses reaching $141 billion if the transition to net-zero emissions succeeds.
According to the UKSIF, the global exposure to the risk of stranded fossil fuel assets could total $2.28 trillion by 2040, based on current policies to cut emissions and long-term net-zero targets. However, the report notes that this loss is much smaller when compared to the potential costs of climate inaction. In a scenario where global temperatures rise by 2.5°C to 2.9°C, the economic impact of climate-related disasters could lead to $12.5 trillion in losses by 2050.
These projections are based on computer models, which use data from researchers and observed temperature records to estimate the effects of climate change.
The idea of stranded assets has been a concern in the energy transition space for years. As Western governments push for greener policies, it seemed likely that much of the oil, gas, and coal reserves being developed today could become unwanted and unprofitable due to decreased demand.
However, recent energy consumption data tells a different story. Despite efforts to transition to alternative energy sources, coal consumption has hit record levels, and both oil and natural gas use are on the rise, particularly natural gas. The growing demand for hydrocarbons is evident in Big Oil’s recent shift back to its core business of producing oil and gas, moving away from transition goals.
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