The global shift toward decarbonization may result in $2.3 trillion worth of stranded oil and gas assets by 2040, according to a report from the UK Sustainable Investment and Finance Association (UKSIF). The report warns that the UK, in particular, is highly exposed to this risk, with potential losses estimated at $141 billion if the transition to net-zero carbon emissions is successful.
The UKSIF report highlights that, based on current green transition policies, mid-term emission reduction plans, and long-term net-zero targets, the global exposure to the risk of stranded fossil fuel assets could amount to $2.28 trillion by 2040. However, the report notes that this loss is relatively small when compared to the potential economic toll of climate inaction. A scenario where global temperatures rise by 2.5°C to 2.9°C could result in economic losses of up to $12.5 trillion by 2050, primarily due to climate-driven natural disasters.
Projections regarding the economic impact of climate change and natural disasters are typically based on computer models that utilize data from researchers and temperature records. While the risk of stranded assets has been a key concern in the energy transition space for years, recent energy consumption trends suggest that such fears may be overstated.
Despite global efforts to reduce reliance on fossil fuels, data shows that consumption of coal, oil, and natural gas is continuing to rise. In fact, coal consumption is at record levels, and natural gas usage is also on the increase. The resilience of the oil and gas sector is evident in the recent shift by major oil companies back to their core business of hydrocarbon production, moving away from transition goals in favor of traditional energy sources. This suggests that the outlook for fossil fuels may not be as bleak as originally projected.