European Capacity Building Initiative

Moving to a Low Carbon Economy: The Impact of Different Policy Pathways on Fossil Fuel Asset Values

This report focuses on the risk of losses in the financial value of existing fossil fuel assets (so called ‘asset stranding’). The key findings of the report include: a) transitioning to a low-carbon electricity system would bring the global economy an estimated $1.8 trillion in financial savings between 2015 and 2035; and b) coal offers the largest emissions reductions for the least loss in financial value where transitioning away from coal can achieve 80% of the needed emissions reductions for just 12% of the asset value at risk.

For the EU, some of the key findings include: a) with the right policies, the EU’s transition away from oil can lead to a net benefit to the financial system of more than $1 trillion, for instance through a combination of pricing and innovation policies to reduce demand for oil; b) the EU has little to lose from a transition away from coal power where the total value of current investment in coal plants at risk is less than 2% of EU power plant investments; c) good electricity market design could preserve the value of the remaining coal plants by paying them to provide flexible generation to balance out renewable energy; and d) EU governments own the majority of upstream coal assets (primarily in Poland, Greece, and Germany), and approximately 40% of coal-fired power plants. In Europe, new business and financial models and instruments that are better suited to investor needs can reduce the cost of renewable energy by up to 20%.

FC Publication Date: 
09 October 2014
FC Publication: 
Laurel Murray