Climate change: the risks of stranded fossil fuel assets and resources to the developing world

Abstract

Under the Paris Agreement, 80% of all proven fossil fuel reserves become stranded resources and investments already made in such resources turn into stranded assets. Much of the existing literature focuses on equitable burden sharing; only a few articles examine the risks for developing countries that invest in new fossil fuels. Hence, this paper addresses the question: What are the risks of investing in fossil fuels for developing countries? In doing so, it examines Kenya, a prospective fossil fuel producer, and China, an investor in fossil fuels. In terms of short- to long-term risks, ignoring new fossil fuels and investing in renewables is favourable and politically, socially, ecologically and economically more rewarding, not least because latecomers to development run the risk of having to compensate investors when new fossil fuel assets strand prematurely and become unrecoverable.

Keywords:

• Carbon budget
• climate change
• developing countries
• fossil fuels
• stranded assets
• stranded resources

Notes

1. UNFCCC, Adoption of the Paris Agreement.

2. The carbon budget we refer to focuses solely on the increase in the concentration of carbon dioxide from the burning of fossil fuels, which is recognised as the primary cause of global warming: Carbon Tracker, Unburnable Carbon 2013, 9.

3. Ibid.; and McGlade and Ekins, “Geographical Distribution of Fossil Fuels.”

4. McGlade and Ekins, “Geographical Distribution of Fossil Fuels.”

5. Ibid.

6. Carbon Tracker, Unburnable Carbon [2011], 2.

7. Rogelj et al., “Zero Emission Targets,” 7–8.

8. McGlade and Ekins, “Geographical Distribution of Fossil Fuels.”

9. Carbon Tracker, Unburnable Carbon [2011], 2.

10. Generation Foundation, Stranded Carbon Assets, 1.

11. Rozenberg, Vogt-Schilb and Hallegatte, Transition to Clean Capital, i.

12. Caldecott, Howarth and McSharry, Stranded Assets in Agriculture, 2.

13. Carbon Tracker, Unburnable Carbon 2013, 17.

14. Bos and Gupta, “Inclusive Development, Oil Extraction”; and Clark and Herzog, “Can ‘Stranded’ Fossil Fuel Reserves Drive,” 7262.

15. van der Ploeg, “Fossil Fuel Producers under Threat,” 211.

16. Fossil Free, “Divestment Commitments.”

17. McGlade and Ekins, “Geographical Distribution of Fossil Fuels.”

18. Van der Ploeg, “Fossil Fuel Producers under Threat,” 216.

19. Stark et al., Renewable Electricity.

20. See, for example IEA, Redrawing the Energy–Climate Map, 239–40; and Clark and Herzog, “Can ‘Stranded’ Fossil Fuel Reserves Drive,” 7269.

21. White House, America First; and Shear, “Trump Will Withdraw US.”

22. UNGA, Declaration on the Right to Development.

23. UNFCCC, United Nations Framework Convention on Climate Change, art. 3, para. 4.

24. KPMG, Oil and Gas in Africa, 2–3.

25. Ibid.

26. Fay et al. Decarbonizing Development, 46.

27. See, for example Heede and Oreskes, “Potential Emissions of CO₂ and Methane”; and Caney, Climate Change, Equity, and Stranded Assets, 7.

28. UNEP, Montreal Protocol.

29. Bos and Gupta, “Inclusive Development, Oil Extraction.”

30. Gupta et al., “Geo-Ecological Risks.”

31. Obergassel et al., Phoenix from the Ashes, 3.

32. See, for example Ramsay, “Revisiting the Resource Curse,” 507–9; and Tsui, “More Oil, Less Democracy,” 111.

33. Patey, Belated Boom, 10.

34. Tullow Oil, Africa’s Leading Independent Oil Company.

35. Council for the Environment and Infrastructure (Rli), International Scan 2016.

36. Schoenberger and Cudlin, “Capturing Stranded Value,” 6.

37. See, for example, Crew and Kleindorfer, “Stranded Assets in Network Industries,” 64, 76–7; Lutzenhiser, “Contours of US Climate Non-Policy,” 515–6; Caldecott, Howarth and McSharry, Stranded Assets in Agriculture, 14; and Rozenberg, Vogt-Schilb and Hallegatte, Transition to Clean Capital, 16.

38. Bernasconi-Osterwalder and Hoffmann, German Nuclear Phase-Out, 2.

39. Zeitbild Wissen, Kernenergie, 34.

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41. Deutsches Atomforum, Stilllegung und Rückbau Kernkraftwerken, 22.

42. Ibid.

43. Ibid.

44. E.ON, Stade: Stilllegung und Rückbau, 21.

45. Micklinghoff, “Phase-out in Germany,” 17.

46. Bernasconi-Osterwalder and Hoffmann, German Nuclear Phase-Out, 1–2.

47. Chazan, “German Court Rules Utilities”; and World Nuclear Association, “Court Backs German Utilities.”

48. Tienhaara, Expropriation of Environmental Governance.

49. Gupta et al., “Geo-Ecological Risks.”

50. Johnson et al., “Stranded on a Low-Carbon Planet,” 89.

51. Gupta et al., “Geo-Ecological Risks.”

52. Almendra et al., “CCS Demonstration in Developing Countries,” 5–6.

53. Bos and Gupta, “Inclusive Development, Oil Extraction.”

54. Ibid.; and Gupta et al., “Geo-Ecological Risks.”

55. Moss, Oil to Cash, 4.

56. Heidari and Pearce, “Review of Greenhouse Gas Emission Liabilities.”

57. van Renssen, “Courts Take on Climate Change.”

58. DNV-GL, UN Global Compact, and Monday Morning–Global Institute, Global Opportunity Report 2015, 29, 34; Heidari and Pearce, “Review of Greenhouse Gas Emission Liabilities”; and Bos and Gupta, “Inclusive Development, Oil Extraction.”

59. Mielke, Anadon and Narayanamurti, Water Consumption of Energy Resource Extraction, 5.

60. Bos and Gupta, “Inclusive Development, Oil Extraction”; and DNV-GL, UN Global Compact, and Monday Morning–Global Institute, Global Opportunity Report 2015, 114.

61. Eweje, “Environmental Costs and Responsibilities,” 38.

62. Ibid; and DNV-GL, UN Global Compact, and Monday Morning–Global Institute, Global Opportunity Report 2015.

63. DNV-GL, UN Global Compact, and Monday Morning–Global Institute, Global Opportunity Report 2015

64. Bos and Gupta, “Inclusive Development, Oil Extraction.”

65. Moreira, “Learning from Failure.”

66. Bos and Gupta, “Inclusive Development, Oil Extraction.”

67. Ibid.

68. Eweje, “Environmental Costs and Responsibilities.”

69. Bos and Gupta, “Inclusive Development, Oil Extraction”; and Gupta et al., “Geo-Ecological Risks.”

70. Gupta et al., “Geo-Ecological Risks”; and Moreira, “Learning from Failure.”

71. Caldecott and Robins, Greening China’s Financial Markets, 5.

72. Heidari and Pearce, “Review of Greenhouse Gas Emission Liabilities,” 900.

73. Moreira, “Learning from Failure,” 156.

74. Gupta, et al., “Geo-Ecological Risks.”

75. Moreira, “Learning from Failure.”

76. Gupta et al., “Geo-Ecological Risks.”

77. Moreira, “Learning from Failure.”

78. Ibid., 151.

79. See for example Poff and Hart, “How Dams Vary.”

80. Ellabban, Abu-Rub and Blaabjerg, “Renewable Energy Resources,” 749.

81. Bos and Gupta, “Inclusive Development, Oil Extraction.”

82. Larcher and Tarascon, “Towards Greener and More Sustainable Batteries,” 20, 27.

83. Bos and Gupta, “Inclusive Development, Oil Extraction.”

84. Fay et al., “Decarbonizing Development”; and Wei, Patadia and Kammen, “Putting Renewables and Energy Efficiency to Work.”

85. Shen and Power, “Africa and the Export.”

86. Obergassel et al., Phoenix from the Ashes, 3–4.

87. UNFCCC, Adoption of the Paris Agreement, art. 28.

88. Van der Ploeg, “Fossil Fuel Producers under Threat,” 216.

89. DNV-GL, UN Global Compact, and Monday Morning–Global Institute, Global Opportunity Report 2015, 114.

90. Sokona, Najam and Huq, Climate Change and Sustainable Development, 2–3; and Bos and Gupta, “Inclusive Development, Oil Extraction.”

91. Almendra et al., “CCS Demonstration in Developing Countries,” 5–6.

92. Dellink et al., “Sharing the Burden of Financing Adaptation”; Bos and Gupta, “Inclusive Development, Oil Extraction”; Caney, Climate Change, Equity, and Stranded Assets, 30–31; and Gupta et al., “Geo-Ecological Risks.”

93. Obergassel et al., Phoenix from the Ashes, 3–4.

94. Van der Ploeg, “Fossil Fuel Producers under Threat,” 216.

95. Heidari and Pearce, “Review of Greenhouse Gas Emission Liabilities,” 900; and Stark et al., Renewable Electricity.

96. Ellabban, Abu-Rub and Blaabjerg, “Renewable Energy Resources,” 749.

97. DNV-GL, UN Global Compact, and Monday Morning–Global Institute, Global Opportunity Report 2015, 118.

98. Larcher and Tarascon, “Towards Greener and More Sustainable Batteries,” 19; and Goodenough, “Energy Storage Materials,” 158.

99. Ibid.; Ellabban, Abu-Rub and Blaabjerg, “Renewable Energy Resources,” 748.

100. Sharda, New Development Bank.

101. Sovacool and Scarpaci, “Energy Justice and the Contested Petroleum Politics,” 168.

102. Rogelj et al., “Paris Agreement Climate Proposals.”

103. UNFCCC, United Nations Framework Convention on Climate Change.

104. Gupta, History of Global Climate Governance; and Gupta, “Paris Climate Change Agreement.”

105. UNFCCC, United Nations Framework Convention on Climate Change.

106. Bodansky, “Framework Convention on Climate Change: a Commentary.”

107. UNFCCC, Kyoto Protocol.

108. Caldecott and Robins, Greening China’s Financial Markets, 7; and Madian, “Meaningful Restructuring,” 64.

109. Madian, “Meaningful Restructuring,” 63–4.

110. Stern, Developing Upstream Competition, 21.

111. Spencer et al., Mapping Issues and Options, 6; and Crew and Kleindorfer, “Stranded Assets in Network Industries,” 64.