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Climate Policy, Stranded Assets, and Investors' Expectations

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  • Suphi Sen

    ()

  • Marie-Theres von Schickfus

Abstract

Climate policies to keep global warming below 2℃ might render some of the world’s fossil fuels and related infrastructure worthless prior to the end of their economic life time. Therefore, some energy-sector assets are at risk of becoming stranded. This paper investigates whether and how investors price in this risk of asset stranding. We exploit the gradual development of a German climate policy proposal aimed at reducing electricity production from coal and analyze its effect on the valuation of energy utilities. We find that investors take stranded asset risk into consideration, but that they also expect a financial compensation for their stranded assets.

Suggested Citation

  • Suphi Sen & Marie-Theres von Schickfus, 2019. "Climate Policy, Stranded Assets, and Investors' Expectations," CESifo Working Paper Series 7945, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_7945
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    File URL: https://www.cesifo-group.de/DocDL/cesifo1_wp7945.pdf
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    References listed on IDEAS

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    1. Peterson, Sonja & Weitzel, Matthias, 2014. "Reaching a climate agreement: Do we have to compensate for energy market effects of climate policy?," Kiel Working Papers 1965, Kiel Institute for the World Economy (IfW).
    2. Jenkins, Jesse D., 2014. "Political economy constraints on carbon pricing policies: What are the implications for economic efficiency, environmental efficacy, and climate policy design?," Energy Policy, Elsevier, vol. 69(C), pages 467-477.
    3. Peterson, Sonja, 2015. "Clash between national and EU climate policies: The German climate levy as a remedy?," Kiel Policy Brief 92, Kiel Institute for the World Economy (IfW).
    4. Cludius, Johanna & Hermann, Hauke & Matthes, Felix Chr. & Graichen, Verena, 2014. "The merit order effect of wind and photovoltaic electricity generation in Germany 2008–2016: Estimation and distributional implications," Energy Economics, Elsevier, vol. 44(C), pages 302-313.
    5. Mathias Mier & Christoph Weissbart, 2019. "Power Markets in Transition: Decarbonization, Energy Efficiency, and Short-Term Demand Response," ifo Working Paper Series 284, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    6. Taran Fæhn, Cathrine Hagem, Lars Lindholt, Ståle Mæland, and Knut Einar Rosendahl, 2017. "Climate policies in a fossil fuel producing country demand versus supply side policies," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    7. Ben Caldecott, 2017. "Introduction to special issue: stranded assets and the environment," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 7(1), pages 1-13, January.
    8. Derek Lemoine, 2017. "Green Expectations: Current Effects of Anticipated Carbon Pricing," The Review of Economics and Statistics, MIT Press, vol. 99(3), pages 499-513, July.
    9. Mukanjari, Samson & Sterner, Thomas, 2018. "Do Markets Trump Politics? Evidence from Fossil Market Reactions to the Paris Agreement and the U.S. Election," Working Papers in Economics 728, University of Gothenburg, Department of Economics.
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    12. Taran Fæhn & Cathrine Hagem & Lars Lindholt & Ståle Mæland & Knut Einar Rosendahl, 2014. "Climate Policies in a Fossil Fuel Producing Country - Demand Versus Supply Side Policies," CESifo Working Paper Series 5105, CESifo Group Munich.
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    Cited by:

    1. Lucas Bretschger & Karen Pittel, 2019. "Twenty Key Questions in Environmental and Resource Economics," CER-ETH Economics working paper series 19/328, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

    More about this item

    Keywords

    stranded assets; climate policy; expectations; utilities; event study;

    JEL classification:

    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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