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The numbers are shocking.
We know roughly how much more carbon dioxide we can release into the atmosphere before we exceed our climate goals of limiting warming to 1.5 to 2°C above pre-industrial temperatures. From this we can find out how much more fossil fuel we can burn before we emit so much carbon dioxide. But when you compare those numbers to our known fossil fuel reserves, things get overwhelming.
To reach our climate goals, we need to use a third of the oil, half of the natural gas and almost all the coal we know is in the ground, unused.
Yet we have – and are still building – infrastructure based on burning much more than that: mines, oil and gas wells, refineries and the distribution networks that bring all those products to market; power plants, cars, trains, boats and airplanes that use the fuels. If we’re going to achieve our climate goals, some of those things will have to be deliberately shut down and left inactive before they can pay off on the money they cost to produce.
But it’s not just physical capital that will cause problems if we decide to take climate change seriously. We have employees trained to use any unused hardware, companies that consider the fuel reserves and hardware as assets on their balance sheets, and various contracts that require the reserves to be exploited.
Collectively, you can think of all of these things as assets — assets that, if we were to take climate change seriously, would see their value plummet to zero. At that point, they would be called “stranded assets” and their stranding has the potential to unleash economic chaos on the world.
Awesome Assets and How to Make Them Stranded
To explain stranded assets, Armon Rezai of the Vienna University of Economics and Business turned to actual strandings. If you have a boat and it gets stuck, you can no longer derive financial benefits from the boat. It remains an asset, but it is no longer useful. The same applies to all the goods it carried, as well as to the crew who were familiar with all its idiosyncrasies.
While those kinds of one-off disasters can certainly occur in the production and use of fossil fuels, they do not pose the kind of large-scale threat to all fossil fuel production that will be under discussion for the foreseeable future.
But there are many ways assets can crash after outrageous events, many of which are relevant to fossil fuels. Joyeeta Gupta from IHE Delft noted that something as simple as a brand going out of fashion can strand assets, leaving the owners with excessive production capacity. Technological changes can also render a product obsolete, freezing all the infrastructure used to make, sell, and maintain it.
All the people we spoke to noted that these kinds of strandings are a normal part of capitalism. And they certainly apply to fossil fuels, as people have been looking for cleaner alternatives and renewable technologies that undercut in price.
But there is also an additional risk: policy interventions by governments. Several governments have already put a price on carbon emissions, launched carbon trading systems and took other measures to discourage the use of fossil fuels or encourage the use of cleaner alternatives. (Of course, many of them have done so while pursuing other policies that promoted the use of fossil fuels.)
It is tempting to think of these stranding mechanisms in terms of trying to identify which of them will be decisive. But they all can – and in fact do – in parallel. And if we want to achieve our climate goals, they will have to act much faster than before.
