If global warming is to stay below 2°C, there are four types of risks of assets stranding. First, a substantial part of fossil fuel reserves will be stranded at the end of the fossil era. Second, this will be true for capital of firms invested in fossil industries as well. Third, unanticipated changes in present or expected future climate policy cause instantaneous discrete jumps in today’s valuation of physical and natural capital. Fourth, if timing and intensity of climate policy are uncertain, revaluation of assets occurs as uncertainty is resolved either when announced climate policy is implemented or when it is botched at some future date. Botching immediately boosts market capitalization, exploration investment and discoveries.
On April 11, 2019, Armon Rezai, Institute for Ecological Economics, Vienne University of Economics and Business, held the webinar RFF-CMCC “Asset Prices and Climate Policy” (moderator: Johannes Emmerling, RFF-CMCC European Institute on Economics and the Environment (EIEE), CMCC Foundation).
Watch the video: