Stranded Asset Implications Of The Paris Agreement In Latin America And The Caribbean

One of the main priorities of the Inter-American Development Group (IDBG) is to integrate climate risks into investment decision-making processes, particularly for infrastructure. The reasons are obvious: the risk of asset stranding due to an extreme weather event or the introduction of disruptive technology such as electric vehicles could result in huge potential costs for governments and investors. As the recent catastrophic floods and mudslides in Peru and Colombia tragically show, we now face these risks. Our estimate of the value of the disused production capacity is based on the initial investment to sustain the capacity and its expected physical life at the time of installation as well as the share of the vintage withdrawn. The cost of putting capital online corresponds to the initial cost of capital overnight (Supplementary Table 3). It is assumed that the financial value of installed capacity will decrease linearly overnight beyond the initial cost of capital. In other words, the economic value of the share capital in the following years is the initial cost of capital of the fraction of the loss of the life of the share capital (Supplementary Figure 2). In other words, the total cost of capital of the asset is calculated as the fraction of the expected (physical) life (Additional Table 4) that has been abandoned due to early closure. This can be expressed as follows: Debt-backed assets are economic resources that suffer from unforeseen or anticipated depreciation or devaluation or that could turn into liabilities. It can occur due to environmental risk factors, such as the effects of global warming or on transient risks related to regulatory responses to deal with the problem.

Three important economic sectors in Latin America and the Caribbean – the fossil fuel industry, tourism, agriculture and forestry – are particularly vulnerable to the working age. The electricity sector is another example. A second study takes into account the CO2 emissions emitted during the lifetime of existing and planned power plants. The study concludes that 10% to 16% of existing plants may need to be “abandoned” to meet the goals of the Paris Agreement and that the construction of more gas, oil or coal plants in the region may not meet these targets. One of the interesting results of our analysis is that the hazard cost of coal technologies is highest in all scenarios, although these technologies account for a relatively small percentage of the total stranded capacity (Figures 4, 2). This is because (1) coal-fired power plants are more capital-intensive than gas-fired and oil-fired power plants and (2) coal-fired power plants have a longer lifespan (60 years) than gas-fired and oil-fired plants (45 years) and, as a result, the economic value of coal-fired power plants is depreciating more slowly than oil and gas plants. In addition, oil equipped with CCS facilities contributes significantly to the stranding costs of the 1.5°C scenarios between 2041 and 2050, as these investments are not only capital-intensive, but also relatively new. As a result, although a small portion of the capacity is closed, the facilities have a relatively high economic value when their operation is shut down. Long-term decarbonisation strategies: an instrument to anticipate and avoid stranded assets in the transition to net-zero emissions.. .

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