25 March 2014 – The notion of stranded assets is gaining ground as companies such as ExxonMobil last week said it would report on its “Carbon Asset Risk” to assess its financial risks from climate change that could lower valuation of its oil reserves.
In a report from the US based GreenBiz on Tuesday, “The move is being seen by some as a pivotal milestone on the road to a low-carbon economy” and is a response to growing regulatory and market pressures to leave coal and oil in the ground.
As GreenBiz points out, this new financial lens doesn’t stop at coal and oil.
“Water-intensive crops, along with nearby processing plants, could be stranded by extreme and prolonged droughts. Facilities located in flood zones could be stranded by rising rivers, bays and oceans. Utility generation facilities could be stranded if cooling water is no longer available. Transmission lines could be stranded as penetration of renewable energy technologies reaches critical mass, as solar and wind are on the verge of doing in some places.
Clearly, regulations and taxes — whether at the local, national regional or global level — are just one way that carbon could lead to stranded assets. As Al Gore and David Blood of Generation Investment Management described in a Wall Street Journal piece in October (may require subscription), there is also indirect regulation through increased pollution controls, constraints on water usage, or policies targeting health concerns; and mandates on increased use of renewable energy adoption and efficiency standards. “Even the threat of impending regulation creates uncertainty for long-lived carbon-intensive assets,” they wrote.
Al Gore and David Blood (via YouTube) Market forces also could lead to stranded assets, they explained, especially as renewable energy technologies become economically competitive with fossil fuels in many markets. “This cost competitiveness, combined with the ability to secure stable long-term prices for power, and an increase in distributed electricity models, could continue to shift capital allocation way from fossil fuels.” Read the whole story
Dirtier fuels are not always tackled directly on a carbon basis, Carbon Tracker says.
“The US EPA has raised its mercury emissions standards increasing the costs of producing electricity from coal. These changing market factors have left the brand new Spiritwood lignite plant in Minnesota mothballed before it even started supplying electricity.
“Canadian tarsands are a vast resource at the carbon intensive end of the oil spectrum. Some US states have already introduced restrictions on this fuel, and the European Fuel Quality Directive proposes to limit the carbon intensity of fuel imports (whether from tarsands or biofuel).
It is becoming clear how reliant many industries are on water, and investors have started to consider this a real risk.
Australia has seen increasingly dry years in the Murray-Darling basin. Agricultural communities have objected to the latest water management plan which aims to reduce the amount of water taken from the river system.
India has already demonstrated it has the capacity to turn coal plants into temporary stranded assets due to simultaneously experiencing water shortages and floods in different part of the country. The closure of a water supply canal and railway supply routes left power stations short of water and coal.
The austerity measures put in place by government agencies are threatening adequate investment in flood defences, with warnings in the UK that there is a growing spending gap [for resilience in infrastructure].
Alaskan and Russian oil and gas infrastructure has been built on permafrost in northern regions. If this melts due to warming, the industry will no longer have a solid surface to work from.
leaks of water containing high levels of radioactive uranium from a coal seam gas (CSG) wastewater pond operated by Santos in New South Wales put the spotlight on an industry already wracked by controversy. Most concerns over CSG have to date focused on “fracking” — fracturing deep rock strata to get at gas in coal seams — but as the incident shows, waste produced by CSG wells and brought to the surface is another major environmental issue.
And The Conversation on Tuesday reported on contamination issues for coal seam gas that will also call into question the viability of these “assets” or at least higher costs to manage the risks.
Included in contamination issues are leaks of water from a coal seam gas wastewater pond operated by Santos in New South Wales, that contained “20 times the acceptable level of uranium for drinking water” and salt from CSG wastewater, shown in a 2011 study in the Queensland Murray-Darling basin.