STRANDED ASSETS
And three months after the Fukushima nuclear disaster in March 2011, Germany decided to shutter eight of its nuclear power plants almost immediately and to phase out its remaining nine plants by 2022. The EUR2.4 billion paid by the government to nuclear power plant operators as compensation represented a small fraction of the estimated $12 billion per year total “social cost” of closing down just the first eight plants. The market price for abandoned nuclear power plants approximates the value of the coins on your dresser. That’s stranded . THE BIGGEST STRANDED ASSET IN HISTORY Right now, investors are grappling with the prospect of the biggest batch of stranded assets in history... nearly $1 trillion in fossil fuel reserves. Under the terms of the Paris Agreement, 196 countries – including the United States, which reentered in February – agreed to aim to reduce the emission of greenhouse gases into the atmosphere. The objective is to limit the rise in global temperatures to 2 degrees Celsius (3.6 degrees Fahrenheit) above pre- industrial levels (with a reach-for-the-stars aim of 1.5 degrees Celsius). Fossil fuels account for 89% of greenhouse gases, according to the Intergovernmental Panel on Climate Change. So the only way to prevent climate catastrophe – more 100-degree days in Siberia (this happened in June), and the 3.1 billion people on Earth who live within 60 miles of the coast having to grow scales since they’ll be permanently swamped – is to limit the usage of fossil fuels.
For example... Let’s say you’re a top-notch oil lamp producer... Then along comes that annoying Ben Franklin and his electricity. It’s not long before your inventory – and your business – is worth close to nothing because the market that you serviced no longer exists, outside of little old ladies who don’t believe in the devilry of the light bulb. More recently... The value of a New York City taxi medallion – a license to operate a cab – collapsed from $1.3 million in 2002 to $200,000 by 2014, as Uber and other ride-hauling apps entered the market. Now, there are still plenty of yellow cabbies on the streets today... But the value of driving a cab has collapsed – and the price of a NYC taxi medallion is never coming back. One-third of the world’s oil reserves, half of total gas reserves, and upwards of more than 80% of coal reserves will need to not be used – not brought up to the surface, and not burned into the atmosphere – to hit the 2-degree target, so that
Mother Earth can still be breathing when our grandkids are adults.
How about that chunky rotary phone in your closet that used to be a centerpiece of your social life? Now, it’s only valuable for the grins of your grandkids when you display it as a relic of another era – priceless, perhaps, but virtually worthless in market terms.
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April 2021
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