concept

fossil fuel asset stranding

Also known as: fossil fuel asset stranding, fossil asset stranding, energy asset stranding, fossil energy asset stranding

Facts (31)

Sources

Energy asset stranding in resource-rich developing countries and ... frontiersin.org Frontiers Jun 10, 2024 31 facts

claimFossil asset stranding creates opposition to global climate governance and presents a challenge for sustainable development.

claimA country's vulnerability to fossil asset stranding is determined by its socio-economic situation, while the sensitivity of the population refers to reactions to crises, such as protests against the government and a lack of trust in institutions.

claimIn Nigeria, compensation payments for fossil fuel asset stranding are considered inadequate because the country's institutional environment, characterized by corruption and political instability, hinders the equitable distribution of funds among relevant actors.

claimFossil asset stranding in resource-rich developing countries leads to multi-faceted implications, including economic volatility from disrupted revenue flows, job losses in the fossil energy sector, and government funding challenges.

perspectiveThe authors aim to investigate the multifaceted implications of climate-policy-induced fossil-asset stranding in resource-rich developing countries by offering a conceptual framework to assess these implications systemically.

claimThe transition risk of energy asset stranding is primarily determined by climate policies and associated changes in fossil energy demand and technologies.

procedureAddressing fossil asset stranding in resource-rich developing countries requires a balanced policy mix that simultaneously addresses four areas: (i) reducing exposure risk, (ii) mitigating economic losses, (iii) tackling the resource curse, and (iv) reducing societal negative impact.

perspectiveThe authors of the study argue that a holistic approach, rather than relying solely on compensation payments, is necessary to identify appropriate sector-specific and country-specific measures for managing fossil fuel asset stranding.

claimThere is a research gap and a policy gap regarding the systematic assessment of the broader societal impact of fossil asset stranding, particularly in resource-rich developing countries.

claimThe production of electrolysis-based hydrogen with renewable energies and the establishment of a hydrogen market provides a non-fossil alternative that is compatible with climate goals and reduces a country's exposure to fossil asset stranding and fossil dependencies.

claimFossil asset stranding exacerbates the vulnerability of populations and the inability of governments to mitigate consequences in countries already weakened by the resource curse, characterized by corruption and weak political institutions.

claimGlobal fossil fuel asset stranding affects all fossil fuels and regions despite net-zero commitments by many countries, according to Rogelj (2023).

claimNigeria is significantly exposed to the risk of fossil fuel asset stranding and faces substantial difficulties in managing the associated challenges.

perspectiveIndustrialized nations that have imported fossil fuels from resource-rich developing countries (RRDCs) for decades should address the negative effects of fossil asset stranding caused by climate policy-induced fossil fuel phase-outs.

perspectiveThe authors argue that a holistic approach with mixed-measures is required to address the implications of fossil asset stranding, highlighting the importance of a just energy transition and the Sustainable Development Goals.

referenceResearch on the effects of fossil asset stranding primarily examines financial sector stability (Carney, 2015; Campiglio and van der Ploeg, 2022), bank and investment fund value at risk (Roncoroni et al., 2021), economic spillovers and green investments (D'Orazio, 2024), energy transition risks (Kemfert et al., 2022), and the 2022 energy crisis (Hoffart et al., 2022).

claimRenewable hydrogen production and exports reduce the vulnerability of populations to high fossil energy prices and the risks associated with fossil asset stranding.

referenceBos and Gupta (2019) analyzed the effects of energy asset stranding in China and Kenya, while Manley et al. (2017) compared risk exposure across different fossil fuel-rich developing countries.

claimInternational compensation payments are financial transfers from importing industrial countries to resource-rich developing countries (RRDC) intended to compensate for losses incurred when fossil fuel production assets are left unused, a process known as fossil asset stranding.

perspectiveThe authors of the article advocate for just energy transition partnerships to support resource-rich developing countries (RRDCs) that are facing the issue of fossil asset stranding.

claimThere is a lack of implemented policies and measures to address the severe implications of fossil asset stranding in resource-rich developing countries and to compensate for the resulting revenue losses.

claimDevelopment economics suggests that resource-rich developing countries need to diversify their economies to mitigate the 'resource curse' and reduce sector exposure to fossil fuel asset stranding.

procedureThe authors adapted an analysis framework originally developed by Schöpflin et al. (2023) to assess the wider economic and societal implications of energy asset stranding at the country level, using Nigeria as an exemplary case.

claimResource-rich developing countries are affected by the transition risk of fossil asset stranding in a more fundamental way than industrial countries.

referenceThe concept of international compensation payments for fossil asset stranding has been discussed in academic literature, specifically by Harstad (2012) and Gard-Murray (2022).

claimThe research agenda for resource-rich developing countries (RRDCs) includes investigating the extent of exposure to fossil energy asset and infrastructure stranding, as well as methods to quantify the wider societal and system consequences of such stranding.

perspectiveThe authors argue that compensation payments for fossil asset stranding face significant implementation challenges and that a problem-oriented mix of policies is required rather than a single policy solution.

claimFuture research on hydrogen partnerships in resource-rich developing countries (RRDCs) should focus on designing policies that compensate for the societal consequences of fossil asset stranding, ensuring benefit-sharing for local populations, and establishing criteria to measure the effectiveness of these benefit-sharing mechanisms.

claimThe risk of fossil asset stranding can create opposition against global climate governance and energy transition efforts, as evidenced by countries with high asset stranding risk refusing firm pledges on emissions reduction or fossil energy phase-out at annual UN climate conferences.

claimFossil asset stranding in resource-rich countries is a multi-faceted problem that extends beyond the issue of interrupted cashflows.

procedureDetermining international compensation payments for fossil asset stranding requires addressing four process-based questions: (1) Calculation methodology: What is an adequate method to calculate payments, considering asset value versus revenue loss? (2) Direct beneficiaries: Who receives the funds—energy firms, local communities, or workers? (3) Legal frameworks: What domestic and international laws govern the process, and are there existing agreements to guide amounts? (4) International cooperation: Will there be cooperation, and should other exporting countries or firms contribute?