Climate Change Science

As policies are developed to support the transition away from fossil fuelled technologies for energy generation, existing assets are likely to become less valuable. Policies can have the effect of restricting the life of assets (for example, the closure of coal power stations in the UK from 2025), making assets uncompetitive (such as the impact of a carbon price / tax) or making them unattractive to investors because of environmental concerns. The transition away from carbon intensive technologies is likely to render existing assets significantly less valuable in the future.

Physical assets in the energy generation sector, such as coal electricity generation, are responsible for the emissions of greenhouse gases, causing climate change. A number of drivers are likely to make such assets less valuable over time:

• Government policies that seek to promote the mitigation of climate change through emission reductions (see this link) may ban the use of such assets (such as the closure of coal power generation in the UK from 2025) or make such assets uncompetitive relative to low carbon alternatives (such as a carbon tax or price). A directory of such policies is available at this link. Over time, it is expected that these policies will have a larger effect.
• Investor appetite for such assets is likely to fall over time as a result of increased investor concerns over environmental, social and governance (ESG) matters.
• Increased deployment of low carbon technologies mean the costs of such technologies falls over time, making these technologies competitive with more carbon intensive options

The response to climate change requires a turnover in the carbon-intensive capital stock that has contributed to emissions historically, replacing such technologies with lower carbon alternatives. More detail on the mitigation options can be seen at this link.