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Slower Paris Implementation Would Risk $20 Trillion in Stranded Assets: IRENA

IRENA

Stranded asset risk around the world will double from US$10 to $20 trillion by mid-century if governments delay implementation of the Paris agreement, the International Renewable Energy Agency (IRENA) warns in a working paper produced for the German government and released ahead of last week’s G20 leaders’ summit in Hamburg.

IRENA looked at the prospects for stranded investments in the power generation, upstream, industry, and residential and commercial building sectors.

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The seriousness of early action is hard to overemphasize,” the report states. “With delayed action, the chance of having stranded assets will increase,” the total cost of low-carbon investments will rise, and “costly negative emission technologies will be required to limit planetary warming.”

Compared to IRENA’s Remap [2] scenario, which works with an 880-gigatonne carbon budget through 2050 and presumes an immediate acceleration in renewable energy deployment, the cumulative value of stranded assets through 2050 increases to $20 trillion, about 4% of global wealth in 2015, if climate action is delayed. The buildings sector is hardest hit, at $10.8 trillion, due to slow turnover in existing structures, followed by upstream energy, where the value of stranded assets increases from $4 to $7 trillion. The report lists Australia, Brazil, Canada, Indonesia, Mexico, the Russian Federation, Saudi Arabia, and South Africa as countries that would face “significant stranding” in their sizeable oil, gas, and coal industries.

For fossil work forces around the world, “the mere threat of stranded assets could cause groups that are potentially affected to slow down or block low-carbon transitions,” IRENA acknowledges. “The sectors most likely to generate substantial political economy ‘frictions’ from asset stranding are those that are large employers, especially where such employment is highly concentrated,” as in upstream fossil production and manufacturing. The report says national government and other stakeholders “can and should avoid such opposition through good transition planning.”

The report lists a series of “high-level action areas”, including financing, immediate reductions in upstream investment, a coal phase-out, energy retrofits for existing buildings, higher energy standards for new structures, increased energy efficiency in industry, and stronger policy signals for prompt action, including “higher carbon prices and larger economic incentives or tighter regulation.” (h/t to The Energy Mix subscriber Ralph Torrie for pointing us to this story)