Main Messages

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Low-Carbon Transition, Stranded Fossil Fuel Assets, Border Carbon Adjustments, and International Cooperation

Grzegorz Peszko, Dominique van der Mensbrugghe, Alexander Golub, and Maksym Chepeliev

Main Messages

• A low-carbon transition represents a material risk to the value of all fossil fuel assets. In the 2018–50 period, global fossil fuel wealth may be US$4.4 trillion to

US$6.2 trillion (13 to 18 percent) lower than in the reference scenario, depending on the ambition level of global climate policies. • The distribution of risk across fuels, countries, and asset owners depends on initial conditions, such as the fuel type they depend on, costs of production, market power and exposure of the rest of the economy to this risk, and on policy pathways—whether they are cooperative or not and whether free riding will meet border carbon adjustment taxes (BCATs) or not. • Net fuel importers have incentives to lead on climate policies and apply BCAT against fuel exporters to encourage their cooperation. Oil wealth benefits from cooperative climate action, while gas exporters may benefit from free riding and leakage, even facing BCATs. High carbon prices would significantly reduce the wealth of coal producers, whether they cooperate or not, but macrofiscal risk for coal-intensive countries is small—stranded power plants and people in mining regions are a bigger challenge. • Lower-income, fragile, and conflict-affected fossil fuel producers may need assistance in the low-carbon transition if they have not yet converted underground energy wealth to produced capital in the manufacturing sector and have limited alternative assets (human and natural) to support growth.