Mumbai Stock Exchange：[Topic] Strand assets

1. The concept of stranded assets

Strand assets refer to assets that are suffering from accidents or premature records, depreciating or converting to liabilities (CalDecott, etc., 2013).Specifically, stranded assets refer to assets that have depreciated or transformed into liabilities before the end of the economic life.

2. The scale of stranded assets

From the "Convention on the Framework of the United Nations Climate Change" in 1994 to officially signed the "Kyoto Protocol" in 1997, and then passed the Paris Agreement in 2015, people’s use of climate environment and clean energy has paid more attention to the use.Strand risk.

Carbon Tracker Initiative (2022) calculated the carbon emissions in the global listed company’s fossil fuel reserve in 2021, and based on the national statistics, the three countries with the highest carbon emissions of oil, coal, and natural gas with oil, and natural gas were counted.The result is shown in Figure 1.The hidden carbon emissions of fossil fuels in India, the United States, and India ranks among the top three.Caldecott et al. (2017) based on the end of 2015 as the benchmark point, using coal -fired power stations to be completely stranded at the next 5, 10, 15 and 20 years in the next 5 years, 10 years, 15 years, and 20 years.Investment assets are from 3.086 trillion to 7.201 trillion yuan (equivalent to 1.45 trillion to 1.05 trillion US dollars), which is equivalent to 4.1%to 9.5%of India’s GDP in 2015.

Carbon Tracker Initiative (2022) counts the overall bandal asset size of listed companies in the 2021 Global Stock Exchange.Figure 2 lists the 25 stock exchanges with the highest total carbon dioxide emissions in oil, natural gas and coal reserves invested by listed companies.On the whole, the total market value of listed companies currently holding fossil fuel reserves in the world reached US $ 7.1 trillion. Among them, the largest capital market with the largest total carbon emissions is the Mumbai Stock Exchange, the New York Stock Exchange, and the Mumbai Stock Exchange.The listed companies of the three major stock exchanges in India have a total carbon emissions of more than 23 billion tons of carbon dioxide, accounting for 70%of carbon dioxide emissions at 1.5 ° C climate target worldwide.

3. The economic consequences of stranded assets

Most economists currently believe that stranded assets will have a negative impact on economic development (Nelson et al., 2014; Carney, 2015).The economic consequences of stranded assets can be divided into two levels: macro and micro.

(1) Macro level

In terms of financial risks, the existing research believes that the stranded assets caused by low -carbon transformation will trigger systemic financial risks.Comerford and Spigant (2016) believe that assets that cannot be used by climate targets will reduce the speed of transition to a low -carbon economy, which will cause a significant shrinkage of asset value and threaten the stability of the financial system.Curtin et al. (2019) also pointed out that the rapid transformation of fossil energy to sustainable and renewable energy sources can trigger systemic financial risks.However, CARNEY (2015), the former governor of the Bank of England, believes that the risk of stranded assets is unlikely to be transformed into a systematic financial risk in the short term. In the long run, it may threaten the stability of the financial system due to the sudden decline in asset value.

For the global economy, stranded assets in the context of climate change will cause greater economic losses.Recent research believes that stranded assets will bring huge, non -linear and irreversible economic losses to the world through capital escape and risk globalization (Comerford and Spiganti, 2016).Some quantitative assessment believes that the direct losses of stranded assets to the global economy are up to trillions of dollars.Mercure et al. (2018) found through statistics that the stranded fossil fuel assets may cause global wealth losses to 1 trillion to 4 trillion US dollars, which is equivalent to losses caused by the 2008 financial crisis.Johnson et al. (2015) found that in the downstream industries of fossil fuels, such as power generation, transportation and other industries, there will be 16.5 billion-55 billion US dollars of assets related to power generation.

(2) Micro level

At the company level, research focuses on the impact of the market value of stranded assets on the market value of a large amount of fossil fuel asset companies (Heede and Oreskes, 2016).On the one hand, stranded assets will bring huge property losses to the company (Leaton and Grant, 2017), such as CalDecott and MCDANiels (2014) found that the market value of European power companies will lose hundreds of billions of euros due to a large number of natural gas power plants.On the other hand, stranded assets have caused the company’s value to be overestimated, which will trigger the panic of investors, which will lead to excessive excitement such as selling stocks (Jackson, 2019).

At the level of financial institutions, stranded assets will affect the insured business of commercial banks’ credit supply, insurance and reinsurance.For commercial banks, the biggest threat of stranded assets is difficult to recover corporate loans in full and in full on time to generate credit risk (GROS et al., 2016).In the bank credit test in the background of low -carbon transformation, the credit rating of fossil fuel companies will change, and banks will bear the exposure of climate risk beyond the expected income.For insurance and reinsurance companies, as the climate risk faced by the enterprise has risen or climate risk becomes more unpredictable, more and more claims are required. If these assets cannot be accurately fixed, then insurance and reinsurance companies will be the insurance company will be.Facing the risk of underwriting (NGFS, 2019).

Fourth, the main reference literature

[1] CalDecott, B. L., Tilbury, J., & Yuge, M. 2013. Stranded Down Under? Environment-Related Factors Changing FOR COOR and What This MEANS FOR lian coal assets. Smith School of Enterprise and the Environment, universityof oxford.

[2] Carbon Tracker Initiative, 2022Mumbai Stock Exchange. Unburnable Carbon: Ten Years on the Financial Markets are Still Enabling A Carbon Bubble. Carbon Tracker Initative.

[3] Carney, M. 2015. Breaking the Tragedy of the Horizon – Clange and Financial Stability. Speech given at lloyd, 29, 220-230.

[4] Comerford, D., & Spiganti, A. 2016. The Carbon Bubble: Climate Policy in A Fire‐sale Modelaging. The Scandinavian Journal of Economics.

[5] Johnson, N., Krey, V., McCollum, D. L., Rao, S., Riahi, K., & Rogelj, J. 2015. Stranded on a low-carbon planet: Implications of climate policy for the phase-Out of Coal-BASED POWER PLARARANTS. Technology ForeCasting and Social Change, 90, 89-102.

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