Fossil fuel assets would be made worthless by 2036 under rapid push for net zero transition, says a study published in Nature Energy. Decarbonizing efforts taken up by countries will slow down the demand for fossils and make the prices more volatile. The study stated that continuing with excess production may lead to unburnable stranded assets, making it worthless by 2036.
There is the risk of producing far more oil and gas than required for future demand, which is estimated to leave $11tn – $14tn in so-called stranded assets, infrastructure, property and investments, where the value has fallen so steeply that they must be written off.
Jean-Francois Mercure, lead author of the study, University of Exeter, said the shift to clean energy would benefit the world economy overall. He believes it needs to be handled carefully to prevent regional pockets of misery and possible global instability. “In a worst-case scenario, people will keep investing in fossil fuels until suddenly the demand they expected does not material and they realize that what they own is worthless. Then we could see a financial crisis on the scale of 2008.”
The study shows how a drop in demand for oil and gas before 2036 will reshape the geopolitical landscape. Current investment flows and government commitments to reach net zero emissions by 2050 will make renewable energy more efficient, cheaper and stable, while fossil fuels will be hit by more price volatility. The most valuable assets are those in remote regions or technically challenging environments. Most exposed, as per the study, are Canadian tar sands, US shale and the Russian Arctic followed by deep offshore wells in Brazil.
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Current oil, gas and coal importers such as the European Union, Japan, India and South Korea will reap hefty economic dividends from the transition because they will be able to use the money they save on overseas fuel purchases to invest in their own countries, including money from renewables that will modernize infrastructure, create jobs and improve energy independence.
