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Will Assets be Stranded or Bailed Out? Expectations of Investors in the Face of Climate Policy

Author

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  • Suphi Sen
  • Marie-Theres von Schickfus

Abstract

The goal to keep global warming below 2°C implies that many energy-sector assets are at risk of becoming stranded. This paper investigates whether and how investors price in stranded asset risk due to climate policy. 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 do care about stranded asset risk due to climate policy, but that they also expect a financial compensation policy for their stranded assets. We show that these results are not driven by contemporaneous confounding events.

Suggested Citation

  • Suphi Sen & Marie-Theres von Schickfus, 2017. "Will Assets be Stranded or Bailed Out? Expectations of Investors in the Face of Climate Policy," ifo Working Paper Series 238, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    • Handle: RePEc:ces:ifowps:_238
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    File URL: https://www.ifo.de/DocDL/wp-2017-238-sen-schickfus-climate-policy.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. 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 Kiel).
    3. Philipp M. Richter & Roman Mendelevitch & Frank Jotzo, 2015. "Market Power Rents and Climate Change Mitigation: A Rationale for Coal Taxes?," Discussion Papers of DIW Berlin 1471, DIW Berlin, German Institute for Economic Research.
    4. 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).
    5. Paul Collier & Anthony J. Venables, 2014. "Closing coal: economic and moral incentives," Oxford Review of Economic Policy, Oxford University Press, vol. 30(3), pages 492-512.
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    Cited by:

    1. Stefano Carattini & Suphi Sen, 2019. "Carbon Taxes and Stranded Assets: Evidence from Washington State," CESifo Working Paper Series 7785, CESifo.

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    More about this item

    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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