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Green finance and the restructuring of the oil-gas-coal business model under carbon asset stranding constraints

Author

Listed:
  • Chevallier, Julien
  • Goutte, Stéphane
  • Ji, Qiang
  • Guesmi, Khaled

Abstract

Against the background of climate change, oil-gas-coal companies are particularly concerned by the notion of stranded assets, i.e., the fact that known fossil reserves cannot be burnt should limitations on greenhouse gas emissions become more stringent. Those assets can suffer from unanticipated or premature write-downs, devaluations or conversion to liabilities. This paper simulates the impacts of carbon stranded assets for 17 major oil-gas-coal firms' value until the horizon 2050. The core of the paper is a stochastic model with stopping times that determines by initial conditions (reserves and extraction rates) which companies are left with ‘stranded assets.’ In the business-as-usual scenario, one-quarter of the Earth's capacity for absorbing emissions will be depleted by 2050. With stringent emissions-curbing policies, an environmental gain of 80% can be achieved. Without a restructuring of their business model, many oil-gas-coal companies stand out from our simulations as being particularly vulnerable to the financial risks of bankruptcies and default events.

Suggested Citation

  • Chevallier, Julien & Goutte, Stéphane & Ji, Qiang & Guesmi, Khaled, 2021. "Green finance and the restructuring of the oil-gas-coal business model under carbon asset stranding constraints," Energy Policy, Elsevier, vol. 149(C).
    • Handle: RePEc:eee:enepol:v:149:y:2021:i:c:s0301421520307667
    DOI: 10.1016/j.enpol.2020.112055
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    References listed on IDEAS

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    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics

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