Green Finance: Stranded Assets, Carbon Risk & the Energy Transition

These flashcards cover key concepts related to stranded assets and carbon risk in the context of the energy transition.

Stranded Assets

Assets that lose their economic value earlier than expected, becoming financial liabilities instead of profitable investments.

Carbon Budget

The maximum amount of CO₂ that can be emitted while keeping global warming below the Paris Agreement target.

Unburnable Carbon

Fossil fuel reserves that must remain in the ground to meet global temperature targets.

Carbon Bubble

The phenomenon of overvalued fossil fuel assets in financial markets, assuming all reserves will be extracted.

Economic Transition

A shift in the economic structure that may create stranded assets, often seen in historical contexts.

Government Policies

Regulations such as carbon taxes and emission limits that reduce demand for high-carbon energy and can lead to stranded assets.

Technological Change

Advancements that can render existing assets worthless, like renewables replacing fossil fuels.

Market Shifts

Changes in supply and demand dynamics that alter profitability for fossil fuel investments.

Environmental Change

Physical impacts of climate change and resource scarcity that affect asset viability.

Systemic Financial Risk

The potential instability in financial markets arising from a disorderly transition away from fossil fuels.

Pension Fund Exposure

The risk to large financial institutions holding significant investments in fossil fuel markets.

Policy Uncertainty

The unpredictability of policy changes that can rapidly impact asset values.

Diversify Investments

The strategy of spreading capital across multiple sectors to reduce exposure to stranded assets.

Climate Risk Disclosure

The requirement for firms to clearly communicate climate-related financial risks to investors.

Just Transition Policies

Support measures for workers affected by the transition away from fossil fuels, including retraining.