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Climate policy, stranded assets, and investors’ expectations

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  • Sen, Suphi
  • von Schickfus, Marie-Theres

Abstract

Climate policies to keep global warming below 2°C might render some of the world's fossil fuels and related infrastructure worthless prior to the end of their economic life time. Therefore, some energy-sector assets are at risk of becoming stranded. This paper investigates whether and how investors price in this risk of asset stranding. We exploit the gradual development of a German climate policy proposal aimed at reducing electricity production from coal and analyze its effect on the valuation of energy utilities. We find that investors take stranded asset risk into consideration, but that they also expect a financial compensation for their stranded assets.

Suggested Citation

  • Sen, Suphi & von Schickfus, Marie-Theres, 2020. "Climate policy, stranded assets, and investors’ expectations," Journal of Environmental Economics and Management, Elsevier, vol. 100(C).
    • Handle: RePEc:eee:jeeman:v:100:y:2020:i:c:s0095069618307083
    DOI: 10.1016/j.jeem.2019.102277
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    More about this item

    Keywords

    Stranded assets; Climate policy; Expectations; Utilities;
    All these keywords.

    JEL classification:

    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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