Senior Research Fellow, Energy, Environment and Resources
Mario RautnerResearcher and Consultant
Shane TomlinsonSenior Associate, E3G; Former Senior Research Fellow, Energy, Environment and Resources, Chatham House

Climate change may become a major factor in the creation of stranded assets, and not just in the energy sector. Assets in agriculture and forestry may also be at risk because of physical impacts as well as through regulatory and technological change.

Soy plantation in Amazon rainforest near Santarem, Brazil. Photo: Ricardo Beliel/Brazil Photos/LightRocket via Getty Images.Soy plantation in Amazon rainforest near Santarem, Brazil. Photo via Getty Images.

Summary

  • To date, much of the research into stranded assets – broadly defined as assets incurring significant unanticipated or premature write-downs or devaluations – has focused on the fossil fuel sector. However, not least in the context of the 2015 Paris Agreement, and with growing understanding that climate change may become a major factor in the creation of stranded assets, it has become clear that it is not just the energy sector that will be affected. Assets in agriculture and forestry may also be at risk of stranding, because of physical impacts such as drought and desertification as well as through regulatory and technological change.
  • The risk of stranding is particularly high in production regions where natural forests are being cleared for agricultural use. Other regions at high risk are those where climate change is predicted to have impacts that will severely disrupt production cycles or shift production patterns. In addition, strong low-carbon development plans can affect the regulatory frameworks that govern the agriculture and forestry sectors, bringing further risks of stranding.
  • Stranding risks have a potential impact on the various actors positioned along the supply chain for agriculture and forest commodities. They include the land- or rights-owners, the owners of infrastructure related to the transport and processing of commodities, consumer companies and investors.
  • The faster the pace of decarbonization, or the more pronounced the impacts of climate change, the greater the chance of asset stranding and the higher the likelihood of economic, social and political impacts. The prospect of asset stranding could be sufficient to cause potentially affected groups to impede efforts towards low-carbon development, but this possibility has not been sufficiently accounted for in the national low-carbon development plans of either developed or developing economies. As a result, there is a potential risk to the implementation of such plans.
  • This paper includes case studies of stranding risk in Brazil, Malaysia and Liberia. In these countries, there are potentially significant risks of stranding, both from regulation and climate change impacts. However, there has been very little consideration of these risks by policy-makers, and there are significant information gaps.
  • Further research is necessary in the following areas: analysing the outlook for biofuels to assess the risk of stranding and the possible impacts of new technology; assessing the physical impacts of extreme weather events on investments, taking into account the role of the insurance industry and price fluctuations; and determining whether growing consumer preferences for ‘sustainable’ products contribute to the risk of stranding in agriculture and forestry.
  • Such research could be used to initiate discussions within producer countries about the risk of stranded assets given their national strategies and policies, and in light of the available evidence of the physical impacts of climate change, in order to identify the options for both mitigating and managing that risk.