concept

international compensation payments

Also known as: international compensation payments, compensation payments

Facts (16)

Sources

Energy asset stranding in resource-rich developing countries and ... frontiersin.org Frontiers Jun 10, 2024 16 facts

perspectiveInternational compensation payments for leaving fossil fuels in the ground are considered a 'silo solution' that lacks a 'silver bullet' quality for addressing asset stranding in resource-rich developing countries.

claimDesigning holistic policies for resource-rich developing countries requires a mix of sound policy instruments, including research into effective compensation payments, just hydrogen partnerships, and benefit-sharing mechanisms.

claimDiscussions on climate policy reveal under-explored aspects such as conflicting climate governance (Stokes, 2020) and the lobbying power of energy firms that expect compensation payments (Sen and Schickfus, 2020).

claimCompensation payments alone are insufficient to adequately compensate developing countries for the stranding of fossil energy assets due to low political feasibility and unresolved implementation questions.

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.

claimSupporting a just and renewable hydrogen economy serves as a complement or alternative to transferring international compensation payments intended to keep fossil fuels in the ground.

claimPolicy measures discussed to address carbon-intensive investments include direct intervention in investments (Kalkuhl et al., 2020), climate-specific macroprudential policies for the financial sector (D'Orazio and Popoyan, 2019), moratoria on extraction (Collier and Venables, 2014), and compensation payments to affected owners (Harstad, 2012; Gard-Murray, 2022).

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.

perspectiveRelying solely on compensation payments to address asset stranding is an inadequate measure because it neglects the justice aspects of broader societal consequences, undermines climate policy efforts by rewarding fossil fuel investments, and faces feasibility challenges due to unsolved questions.

claimThe stated aim of international compensation payments is to share the economic burden of climate change mitigation with resource-rich developing countries, helping them diversify their economies, invest in renewable energy, and develop sustainable industries.

claimInternational compensation payments for fossil asset stranding may create a moral hazard by rewarding investments in fossil fuel assets, including those made after the 2015 Paris Agreement, which could undermine low-carbon transition efforts.

claimInternational compensation payments for fossil asset stranding may lack social acceptance in industrial donor countries, where populations may prefer that funds be directed toward domestic energy transitions or national sustainable development projects.

claimDirecting compensation payments toward stranded fossil energy assets may divert financial resources away from investments in renewable energy and other sustainable development initiatives.

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

procedureThe authors analyze and compare three mitigation measures for asset stranding in resource-rich developing countries: compensation payments, policy mixes, and hydrogen partnerships.

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?