Stranded Fossel-fuel Assets and Climate Action in the US and Europe

Potential pension fund losses should not deter high-income countries from bold climate action

Containing global temperature rise to 1.5° in order to meet the Paris Agreement target would require shutting down fossil-fuel production sites before available reserves or the useful life of the capital equipment are exhausted.

Fossil fuel resources that cannot be burned and fossil fuel infrastructure (e.g. pipelines, power plants) that is no longer used may end up as a liability before the end of its anticipated economic lifetime – these are called ‘stranded assets’.

Governments in rich Western countries may water down their climate policies for fear of the social repercussions of such asset stranding. In particular, pension plans invested in capital markets that are already underfunded could be at risk of falling even shorter of meeting their present and future pay-out obligations.

While there is good evidence that the richest few percent of individuals and households account for the bulk of carbon emissions through their consumption and investments, the distribution of ownership of fossil-fuel assets and infrastructure at risk of stranding is much less analysed.

This paper explores the distribution of stranded assets in the United Stated and European countries, as well as the social repercussions and possible compensations of such asset stranding.

• It finds that the wealthiest 10% will bear most of stranded asset financial losses (65% of total losses in the US and 75% on average in the EU).
• It argues that governments should not be deterred by the risk of stranded fossil-fuel assets because any resulting wealth loss that causes economic hardship can be compensated at low cost.

Authors

• Lucas Chancel, World Inequality Lab, Paris School of Economics, Centre for Research on Social Inequalities, Sciences Po, France
• Gregor Smienuk, Political Economy Research Institute and Department of Economics, University of Massachusetts, United States
• Neil R. Edwards, The Open University, Milton Keynes, UK
• Philip B. Holden, Environment, Earth and Ecosystems, The Open University, Milton Keynes, United Kingdom
• Jean-François Mercure, The World Bank, Washington, United States
• Eulalie Saïsset, World Inequality Lab, Paris School of Economics, France

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