Topic: Stranded assets

Shell pension fund challenged to disclose response to climate risk | Financial Times

“As the financial impacts and risks of climate change on pension fund portfolios become ever clearer and their investment regulations are updated, trustees have no excuse for failing to examine this topic and disclose their risk management of it.”

Climate Horizons Report 2018 | Centre for Policy Development

"Climate change is not some distant threat. It is a global tragedy unfolding before our eyes, disrupting ecosystems, communities and economies. For companies, investors and financiers the risks and opportunities are immediate and pressing. The expectations of markets and policymakers on emissions reduction targets and adaptation measures are ramping up. Customers, shareholders and regulators demand increasingly sophisticated responses. If Australian businesses and company directors fail to react urgently and coherently, then they will jeopardise their own future: assets will be stranded or uninsurable, investment will stall, debts will go unpaid, and companies will collapse.” Download the full report here

Mind The Gap: the $1.6 trillion energy transition risk | Carbon Tracker Initiative

Fossil fuel companies risk wasting $1.6 trillion of expenditure by 2025 if they base their business on emissions policies already announced by governments instead of international climate goals, Carbon Tracker warns in a report released today, that models the IEA’s 1.75C scenario for the first time.

Adani coalmine at heightened risk of becoming a stranded asset, report says | The Guardian

The risk of the controversial Adani Carmichael coalmine becoming a stranded asset has increased in the last 12 months, according to a new report.  The Institute for Energy Economics and Financial Analysis (IEEFA), says the Carmichael project is likely to be “cash flow negative” for the majority its operating life, even with concessional loans. The IEEFA’s new report, Adani’s Remote Prospects, warns Adani Enterprises is not in a strong financial position.

It has thrown into doubt the wisdom of lending the project $1bn worth of taxpayers’ dollar through the Northern Australia Infrastructure Facility (NAIF).

It comes a week after John Hewson, a former Liberal party leader, warned the Carmichael coalmine was already a “stranded asset” and the last thing the Turnbull government should be doing is lending Adani $1bn. 

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Turnbull is on a 'clean coal' collision course with APRA | The AFR

Prime Minister Malcolm Turnbull is on a collision course with the Australian Prudential Regulation Authority over his government's crusade for Australia's $10 billion green bank to invest in "clean coal" power stations, experts say.

The independent banking regulator entered the climate policy debate 10 days ago with a speech by APRA member Geoff Summerhayes warning that banks and their directors could be legally liable if they fail to consider the increasing risk of carbon-intensive assets such as power stations becoming "stranded'.

APRA's dramatic intervention came days after Treasurer Scott Morrison brought a lump of coal to Parliament to champion "clean coal" power as a solution to the blackouts that have hit the electricity grid with growing shares of wind and solar energy and coal plant retirements.

Energy Minister Josh Frydenberg and other ministers say they will change the $10 billion Commonwealth-owned Clean Energy Finance Corporation's guidelines to redefine "clean energy' to include "clean coal" power in order to stabilise the grid.

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'Clean coal': billions of dollars and lots of carbon | Ben Potter

The Turnbull government wants to ease Clean Energy Finance Corporation guidelines to allow "clean coal" to qualify for "clean energy" funding but figures from a big Japanese supplier of clean coal plants suggest the guidelines would have to be gutted to get the plants over the line. Jonathan Carroll
A top executive at the largest Japanese supplier of high tech coal-fired power plants says they would likely cost more than thought in Australia and still emit relatively large quantities of carbon.

Akihiko Kazuno, head of global strategic planning for Mitsubishi Hitachi Power Systems, said the company's ultra-supercritical power stations – the most advanced currently being built commercially – typically cost between $US1.5 billion and $US3.5 billion per 1000 megawatts of capacity.

Prime Minister Malcolm Turnbull, Energy Minister Josh Frydenberg, Treasurer Scott Morrison and the Minerals Council of Australia – which is launching a "Coal: Making the future possible" advertising campaign – are pushing for "clean coal" plants to be built in Australia.

But industry says the plants are "unbankable" because of their high costs and carbon risk and resources entrepreneurs Gina Rinehart and Trevor St Baker have shunned the technology too.

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Major Initiative to Embed Climate Concerns in Investment Decisions | Church of England

Thirteen leading international asset owners and five asset managers with over £2 trillion under management launched the Transition Pathway Initiative (TPI) today to better understand how the transition to a low-carbon economy affects their investments. The TPI will assess how individual companies are positioning themselves for the transition to a low-carbon economy through a public, transparent online tool. The heads of funds involved launched the Initiative this morning (11th January) at the opening of the stock market at the London Stock Exchange. 

Click here for the press release.

Stranded assets in the fossil fuel industry and why they are important

Stranded assets in the fossil fuel industry and why they are important

What are stranded assets?

CTI introduced the concept of stranded assets to get people thinking about the implications of not adjusting investment in line with the emissions trajectories required to limit global warming. There have been a number of interpretations, including:

  • Regulatory stranding – due to a change in policy of legislation
  • Economic stranding – due to a change in relative costs / prices
  • Physical stranding – due to distance / flood / drought

 

The concept has warranted a new programme at the Smith School of Oxford University which considers stranded assets across a range of sectors from an academic perspective. From a financial perspective, accountants have measures to deal with the impairment of assets (eg IAS 16) which seeks to ensure that an entity’s assets are not carried at more than their recoverable amount.

Why are they important?

CTI says: Stranded assets are fossil fuel energy and generation resources which, at some time prior to the end of their economic life (as assumed at the investment decision point), are no longer able to earn an economic return (i.e. meet the company’s internal rate of return), as a result of changes in the market and regulatory environment associated with the transition to a low-carbon economy.

Stranded assets and thermal coal: An analysis of environment-related risk exposure | Smith School of Enterprise and the Environment, Oxford University

The top 100 coal-fired utilities, top 20 thermal coal miners, and top 30 coal-to-liquids companies have been comprehensively assessed for their exposure to environment-related risks, including: water stress, air pollution concerns, climate change policy, carbon capture and storage retrofitability, future heat stress, remediation liabilities, and competition from renewables and gas. The research is designed to help investors, civil society, and company management to analyse the environmental performance of coal companies and will inform specific investor actions related to risk management, screening, voting, engagement, and disinvestment. The research also has clear implications for current disclosure processes, including the new Task Force on Climate-related Financial Disclosures.

Authors: Ben CaldecottLucas KruitwagenDaniel Tulloch, Irem Kok, James Mitchell | Report

Market Inflection Points | Governance Direction

Rapid changes in market dynamics have a material impact on the success of businesses. International agreements to limit global warming will restrict the amount of fossil fuels that can be burned in the future. This may create difficulties for the fossil fuel industry, including ‘stranding’ assets.

Author: Ben Scheltus, CEO, Climate Alliance Limited

Re-printed with the kind permission of the Governance Institute Australia