Climate deal to increase 'stranded asset' risk

Climate deal to increase 'stranded asset' risk

The global climate change agreement reached in Paris last week is likely to have “immense” impacts on both markets and investment strategies, says the Institute for Energy Economics and Financial Analysis (IEEFA).


IEEFA said the Paris Agreement, whereby a 1.5 degree global warming target was adopted, will impact investment markets and capital allocations globally.

IEEFA financial analyst Tim Buckley said: “We have long outlined our analysis that there is significant stranded asset risk in continuing to invest heavily in fossil fuel companies.

"The financial market implications of stranded coal mine, coal-fired power and coal-related rail and port infrastructure assets and carbon bubble risks are hugely increased." 

In reference to recent figures released by Barclays, Mr Buckley said the Paris accord will reduce fossil fuel revenue by 25 per cent over the next 30 years. It will also divert around $40 trillion of capital to energy efficiency and renewable sectors over the next 30 years.

“That risk potentially exposes not just businesses, investors, shareholders, but in some instances significant segments of the Australian economy through refusal to accept the inevitability of technology and innovation in energy markets.

“The deflationary benefit of the ever lower cost of renewable energy with storage will transfer a significant wealth effect from the fossil fuel companies to global consumers,” he said.

Mr Buckley pointed out that throughout the last year, and particularly in the month leading up to the talks in Paris, global coal stocks have fallen significantly due to the prospect of an agreement.

In the Australian equity market, Whitehaven Coal was down 25 per cent in one week – 42 per cent in a year. New Hope Corp is down 12 per cent in a week, with Yancoal Australia and Wollongong Coal down 67 per cent in the last year.

Within the US equity market, Peabody Energy shares were down 11 per cent in the last week, now set to be down 92 per cent in the last year. Arch Coal is down 25 per cent in the last week with Consol Energy down 79 per cent in a year.

“Denial of an inevitable global transformation of energy markets has only served to make the end cost for investors and consumers higher,” Mr Buckley said.

 

 

Climate deal to increase 'stranded asset' risk
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