Stranded asset

Stranded assets are "assets that have suffered from unanticipated or premature write-downs, devaluations or conversion to liabilities".^[1] Stranded assets can be caused by a variety of factors and are a phenomenon inherent in the 'creative destruction' of economic growth, transformation and innovation; as such they pose risks to individuals and firms and may have systemic implications.^[2] Climate change is expected to cause a significant increase in stranded assets for carbon-intensive industries and investors, with a potential ripple effect throughout the world economy.^[3][4]

The term is important to financial

The term stranded assets has gained significant prominence in environmental and climate change discourse, where the focus has been on how environment-related factors (such as climate change[4]^[3][7]) could strand assets in different sectors.^[2] The term "climate-related asset stranding" is often used in this context.^[8] This will affect oil, gas, and coal companies, and "carbon-intensive industries such as steel, aluminum, cement, plastics, and greenhouse horticulture".^[4] More broadly, countries that rely on fossil fuel exports and workers with technology-specific skills can be thought of in terms of stranded assets.^[4] According to the Stranded Assets Programme at the University of Oxford's Smith School of Enterprise and the Environment, some of the environment-related risk factors that could result in stranded assets are:^[1]

• environmental challenges (e.g. climate change, natural capital degradation)^[3][4]
• changing resource landscapes including resource depletion (e.g. shale-gas abundance, phosphate scarcity)
• new government regulations (e.g. carbon pricing, air pollution regulation, carbon bubble)
• falling clean-technology costs (e.g. solar photovoltaics, onshore wind, electric vehicles)
• evolving social norms (e.g. fossil fuel divestment campaign) and consumer behaviour (e.g. certification schemes)
• litigation (e.g. carbon liability) and changing statutory interpretations (e.g. fiduciary duty, disclosure requirements)

In the context of upstream energy production, the International Energy Agency defines stranded assets as "those investments which are made but which, at some time prior to the end of their economic life (as assumed at the investment decision point), are no longer able to generate an economic return, as a result of changes in the market and regulatory environment."^[9]

The

In discussions of electric power generation deregulation, the related term stranded costs represents the existing investments in infrastructure for the incumbent utility that may become redundant in a competitive environment.

Stranded assets by sector

Energy sector

Companies extracting

• Some installations, such as oil wells for instance can be
  abandoned wells
  are suitable for long-term storage.
• Natural gas still has a place in the hydrogen economy, assuming however if it is converted to hydrogen for use in fossil fuel power plants and if the carbon that is separated off during this process is captured and stored (see Natural gas-fired power station conversion to hydrogen).
• Companies owning coal-fired fossil-fuel power stations may
  other contaminants otherwise emitted from these power plants, this may help to ensure that pollution levels from the power plants are heavily reduced or eliminated. Avoiding the emission of pollutants from fossil fuel power plants is essential to help avoid the possibility of lawsuits being filed against the operators of the power plant.^[19][20][21]
• Coal is generally retrieved from
  lung and skin problems (besides a multitude of other dangers, see mining accident). Depending on the contract closed with the miners, the mine owner can be at risk of being sued for fatal accidents and other health damage caused by the laborers working in the mine.^[22] Also, the extraction of coal tends to have major cost-effectiveness and competitiveness problems when compared to other sources of energy such as natural gas,^[23][24] nuclear power, ... Coal mine operation may halt because of this, and/or when the coal present in the mine runs out or is no longer easily extractable. They however can still be of use in other ways. Mines (lower shafts) for instance also often contain water and geothermal heat. These products may or may not be extractable and sellable.^[25][26] In addition, old mine shafts in mines can be repurposed for grid energy storage.^[27]

In agriculture and forestry, the risk of the stranding of assets is significant.[28]^[29]

Assets are at risk of becoming stranded due to technological advances in agriculture, changes in environmental regulations and policies and natural disasters (i.e. flooding, storms, drought, ...). Crops may be damaged or destroyed by flooding of fields, hailstorms and drought. Livestock may suffer or die due to lack of water or vegetation (grass in meadows). Also, due to climate change, weather variability has increased (see effects of climate change) and natural disasters occur more frequently, increasing the risk further.^[30]

The Coller FAIRR Protein Producer Index has been created which has compiled a list of protein producing companies, giving some insight into the likeliness of some agricultural companies of being stranded. It has ranked many companies in the meat, fish and dairy sector as performing poorly.^{[31] [32]}

The keeping of livestock typically requires a lot of space (see

In some countries, such as Ireland and the Netherlands, there is a discussion ongoing on shrinking the amount of livestock kept in the country (by in some cases, up to 50%).^[38][39]

Other options are also being explored to reduce the impact of livestock on the environment such as genetic selection^[40][41] introduction of methanotrophic bacteria into the rumen,^[42][43] diet modification and grazing management.^[44][45][46]

Some farmers have started to adopting move towards less meat production (smaller herds), but which is higher in quality (taste) and thus also in price (i.e. by feeding their livestock exclusively or predominantly with grass, ...). See organic farming and ecolabel for details on this mechanism. By using only or predominantly grass, emissions are also typically somewhat lower and taste can be improved.^[47][48]

Regardless of this, some reports still speak of a large decline of livestock at least some animals (e.g. cattle) in certain countries by 2030.^[33][34] The book The End of Animal Farming argues that all animal husbandry will end by 2100.^[49]

Price variability of crops also poses a financial risk to farmers. Some have switched to community-supported agriculture, in which the farmer is paid a fixed price for crops he supplies to his customers on a weekly or monthly basis (subscription). This avoids price variability and thus reduces financial risk for the farmer.

In shrimp farming, integrated mangrove-shrimp aquaculture exists, which farms shrimp in mangroves rather than in closed ponds. This also avoids possibility of diseases occurring. In addition to this, it may be an incentive for entrepreneurs to restore mangroves in locations where they have previously been destroyed, as they can then reap the financial benefits of those newly created mangroves.

In some low-lying coastal areas, the risk of buildings being inundated has increased due to the effects of climate change (sea level rise). However, the risk of construction (for construction companies, investors, ...) decreases if preventive measures (are planned to be) executed.

Presence of litter (non-biodegradable

Some supermarkets have started supplying more food in bulk (using dispensers, ...) and using non-plastic packaging for food (see zero-waste supermarket). This avoids costs on the purchase of plastic containers, and avoids health concerns consumers may have regarding plastic food container use (see health issues on plastic food containers).

Real estate

In the real estate industry, stranded assets can refer to buildings that have become obsolete due to changes in population, technology, and regulation.^[68] Examples of this would be buildings that were once used for industrial purposes but are now no longer suitable for such uses due to new regulations on emissions. Alternatively, buildings may become stranded because there is not enough demand for them; For example, a shopping mall in an area that has seen a decrease in population or people who live nearby who can no longer afford its goods. Stranded assets are also a concern when it comes to climate change as buildings constructed before modern environmental regulations may be less energy-efficient than newer models and cost more to operate or require costly renovations in order to meet current standards.

Transport

Technology change may cause other stranded assets. For example, moving to

For freight transport, entrepreneurs can opt to transport their goods by rail or sea as an alternative to road transport (for a section or the entirety of the trajectory). This avoids possible problems such as road congestion, blind spot accidents (and other accidents) with trucks in city center streets, ... Road congestion may cause delivery delays, and accidents involving trucks may lead to legal problems^[70] and represent possible extra costs for the company.

For last-mile delivery (i.e. in city centers), distribution centers can be used. They allow easy restocking of supermarkets, outlet stores, restaurants, and more in city centers. They rely on tractor units to unload their cargo in the suburban distribution center. The products are then placed in a small truck (sometimes electrically powered

In instances where trucks need to be used for the entirety or part of the trajectory (within or outside heavily populated zones),

See also

• Recycling concrete of abandoned buildings
• Carbon bubble
• Carbon offsetting
  : used by companies to reduce their carbon emissions
• Carbon tax: internal carbon taxes are levied by companies to reduce climate change-related risk exposure
• Climate lawsuit
• Disruptive innovation
• Environmental stewardship
• Economics of climate change
• Ghost town repopulation
• Leapfrogging
• Land recycling

References