First-Ever IEA & IRENA Report: Early Action Needed To Prevent $10 Trillion In Stranded Fossil Fuel Assets

This is the second of three articles detailing the findings from the first report ever published jointly by the International Energy Agency (IEA) and the International Renewable Energy Agency (IRENA). The first article deals with the report’s findings on emission reductions, the second article deals with the predicted economic benefits of the energy transition, while this article deals with the potential trillions of dollars worth of stranded assets. 

Early action in transitioning to a low-carbon energy sector is critical not only for keeping global warming to under 2°C, but also for minimizing the risks of additional stranded fossil fuel assets, which could amount to as much as an additional $10 trillion in assets by 2050.

This is one of the subsidiary findings from a first ever report published jointly by the International Energy Agency (IEA) and the International Renewable Energy Agency (IRENA) this week. The report, Perspectives for the Energy Transition: Investment Needs for a Low-Carbon Energy Transition, focused on the global potential for decarbonization of the energy sector in an effort to determine the investment needs and potential over the next decades.

Specifically, the authors of the report note that “Delaying decarbonisation of the energy sector would cause the investments to rise and would strand an additional USD 10 trillion in assets.” Already investments needed to effectively transition work out to around $3.5 trillion in energy sector investments on average each year between 2016 and 2050, compared to only $1.8 trillion invested in 2015. There are also three separate variations of the impacts and losses that could be incurred by the energy industry, as outlined by the report:

• The extent of existing fossil fuel reserves that will be left unexploited as a result of climate policy (“reserves left in the ground” or “unburnable fossil fuels”).
• The capital investment in fossil fuel infrastructure which ends up failing to be recovered over the operating lifetime of the asset because of reduced demand or reduced prices resulting from climate policy (“stranded assets”).
• The potential reduction in the future revenue generated by an asset or asset owner assessed at a given point in time because of reduced demand or reduced prices resulting from climate policy (“carbon bubble”).

Most importantly, however, the report also highlights the amount of “unburnable fossil fuels.” Currently, global fossil fuel reserves consist of around 1,000 billion tonnes of coal, 1,700 billion barrels of oil, and 215 trillion cubic meters of gas. The CO2 emissions that would result from using these resources would total around 2,800 gigatonnes of carbon dioxide emissions, over three-times the remaining CO2 budget currently fixed if we are to reach the 2°C target.

Proportion of fossil fuel reserves produced in the 66% 2°C and New Policies Scenarios, 2015 – 2050

The forecast outlook put forward in the report sees coal consumption drop by more than 65% by 2050, oil by around 55%, and natural gas by less than 20%. Looked at in another way, the report found that from the current reserves, 80% of steam and coking coal, 50% of oil, and 50% of natural gas would be unburnable. In another scenario, however, less than 40% of coal reserves and 80% of oil and gas reserves are produced between 2014 and 2050 — in other words, 60% of coal reserves and 20% of oil and gas reserves are not produced by 2050 under this scenario.

“The world’s proven reserves are not synonymous with those lined up for development, though this is the definition implied by most international classification systems.”

Under the primary scenario put forward in the report, in the power sector the authors predict the total value of stranded assets to be $320 billion globally through to 2050 — referring specifically to “fossil fuelled power plants that would need to be retired prior to recovering their capital investment.”