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From Riches to Rags? – Stranded Assets and the Governance Implications for the Fossil Fuel Sector

From Riches to Rags - Stranded Assets and the Governance Implications for the Fossil Fuel Sector

After years of stagnation, the successful climate conferences of Paris in 2015 and Marrakesh in 2016 have revived global climate governance. The agreements reached, in particular the global commitment to limiting the temperature increase to 1.5-2 degrees Celsius, will – provided that they are fully implemented – have massive implications for the fossil fuel sector. The era of fossil fuels such as oil, gas and coal as a source of energy will foreseeably (have to) end, more rapidly and comprehensively than many people currently realise.

Against this background, "From Riches to Rags?" looks into the subject of stranded assets in the fossil fuel sector. Stranded assets are assets that lose value, or generate new liabilities, before they reach the end of their (planned) economic life. In this paper, assets primarily refer to fossil fuel resources (oil, gas and coal) that need to stay in the ground because otherwise the 2-degree target specified in the Paris Agreement would be jeopardised.

To shed light on the foundations and context of this challenge, the authors first explore the links between climate change and fossil fuels. They then analyse in detail the possible impacts of stranded assets on national economies and budgets, on fossil fuel enterprises, and on investors. Based on this analysis, they propose entry points for international cooperation and topics for further research. The starting point for this is the fact that we can only tackle the climate challenge by embarking on a comprehensive transformation towards a decarbonised global economy as soon as possible. The fossil fuel sector can contribute to this process. However, this will require a change of direction. 

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