Stranded assets are "assets that have suffered from unanticipated or premature write-downs, devaluations or conversion to liabilities". Stranded assets can be caused by a variety of factors and are a phenomenon inherent in the 'creative destruction' of economic growth, transformation and innovation; as such they pose risks to individuals and firms and may have systemic implications.
The term is important to financial risk management in order to avoid economic loss after an asset has been converted to a liability. Accountants have measures to deal with the impairment of assets (e.g. IAS 16) which seek to ensure that an entity's assets are not carried at more than their recoverable amount. In this context, stranded assets are also defined as an asset that has become obsolete or non-performing, but must be recorded on the balance sheet as a loss of profit.
Stranded Assets are defined as mis-accounted (LOST financial payment) transactions, within an organization's Accounts Payable department and possibly the Accounts Receivable Department. In short, entities pay service vendors, but these transactions lose the necessary paper trail (tracking) of bank reconciliations needed to be properly controlled by Accounting Departments to retrieve outstanding payments back to their companies.
Further, many Stranded Assets are temporarily lost within financial transactions, that are not properly recovered back to cash accounts. Professional Forensic Accounting by qualified Auditors, can use computerized name variation programs to retrieve these lost funds and recovered them back using Letters of Authority (LOA) from various Financial institutions, such as Banks, State and local Governments, Utilities, Telecommunication companies, etc.
The term stranded assets has gained significant prominence in environmental and climate change discourses, where the focus has been on how environment-related factors (such as climate change policy) could strand assets in different sectors. The term "Climate-related asset stranding" is often used in this context. According to the Stranded Assets Programme at the University of Oxford's Smith School of Enterprise and the Environment, some of the environment-related risk factors that could result in stranded assets are:
- environmental challenges (e.g. climate change, natural capital degradation)
- changing resource landscapes including resource depletion (e.g. shale-gas abundance, phosphate scarcity)
- new government regulations (e.g. carbon pricing, air pollution regulation, carbon bubble)
- falling clean-technology costs (e.g. solar PV, onshore wind, electric vehicles)
- evolving social norms (e.g. fossil fuel divestment campaign) and consumer behaviour (e.g. certification schemes)
- litigation (e.g. carbon liability) and changing statutory interpretations (e.g. fiduciary duty, disclosure requirements)
In the context of upstream energy production, the International Energy Agency defines stranded assets as "those investments which are made but which, at some time prior to the end of their economic life (as assumed at the investment decision point), are no longer able to earn an economic return, as a result of changes in the market and regulatory environment."
The carbon bubble is one popular example of how an environment-related risk factor could create stranded assets. Another example is pre-end of life decommissioning of nuclear power stations, decided by the German government and debated in Japan after the Fukushima Daiichi nuclear disaster. In financial terms, not only is the payback time of the asset curtailed, acceleration of decommissioning liabilities also increases their net present cost. When decisions result from changes to government legislation, liabilities exceeding decommissioning provisions accumulated over the asset's useful life may need to be shouldered by the tax payer, as opposed to the owner/operator.
In discussions of electric power generation deregulation, the related term stranded costs represents the existing investments in infrastructure for the incumbent utility that may become redundant in a competitive environment.
Stranded assets by sector
Companies extracting fossil fuels (fossil oil, coal) face the threat that, due to their contribution towards global warming, consumers could switch to emissionless alternative fuels instead (i.e. hydrogen, biofuels, ...). Also, there is the threat that fossil fuel subsidies might be cut (partially or completely) in some areas (see European Green Deal). Some oil companies have stated that the changing energy landscape coupled with the economic toll of the COVID-19 pandemic means that the global crude demand will never again surpass 2019's average. BP is already attempting to move from being an international oil company into becoming an integrated energy company that will focus on low-carbon technologies while also setting a target to reduce its overall oil and gas production by 40% by 2030. Exxon Mobil has been working on algae fuels since at least 2013 and it reported a breakthrough in the joint research into advanced biofuels in 2017. It should be mentioned here that oil companies produce not only fuel (i.e. gasoline, diesel, ...) from crude oil but also produce various fossil oil derivates which are used by the petrochemical industry. To replace fossil oil-based plastic, the petrochemical industry itself is looking at bioplastics which are made using substances obtained from crops (biorefining). In some cases, existing fossil oil refineries can be repurposed as biorefineries Biorefineries may produce alternative fuels, but also a wide range of other derivates depending on the feedstock used.
If consumers indeed completely switch to emissionless fuels for powering their vehicles, then this would reduce profitability of their fossil fuel extracting installations (as less large amounts of their fossil fuels are sold). To reduce or eliminate this threat, several possibilities exist:
Some installations, such as oil platforms for instance can be repurposed to pump CO2 into rocks below the seabed.
Natural gas still has a place in the hydrogen economy, assuming however if it is converted to hydrogen for use in fossil fuel power plants and if the carbon that is separated off during this process is captured and stored (see Natural gas-fired power station conversion to hydrogen).
Companies owning coal-fired fossil-fuel power stations may choose to convert their fossil power plant to run on less polluting fuels (biofuels, ...) or change it to a grid-based energy storage system. Carbon capture and storage systems also exist for these types of power plants.
Coal is generally retrieved from coal mines. Mines (lower shafts) also often contain water and geothermal heat. These products may or may not be extractable and sellable.  In addition, old mine shafts in mines can be repurposed for grid energy storage.
Some cities have low emission zones in place, which put limits on the allowed exhaust gas emissions. Not all combustion engine vehicles may reach these emission limits and vehicle owners may decide to convert their vehicle to run on a different fuel because of it (which is emissionless). Possibilities include conversion of their existing vehicle to electric propulsion (see electric vehicle conversion), conversion of their existing vehicle to hydrogen (see hydrogen internal combustion engine vehicle), ethanol, biobutanol, biodiesel, bioether, ... (see alternative fuel vehicle). Availability of biofuel fuel stations differ per region, but for hydrogen for instance, hydrogen stations exist that can generate hydrogen in-situ and are suitable for home use, and many countries are also working on converting their natural gas pipeline system (see hydrogen economy).
Agriculture and forestry
Assets are at risk of becoming stranded due to technological advances in agriculture, changes in environmental regulations and policies and natural disasters (i.e. flooding, storms, drought, ...). Crops may be damaged or destroyed by flooding of fields, hailstorms and drought. Livestock may suffer or die due to lack of water or vegetation (grass in meadows). Also, due to climate change, weather variability has increased (see effects of climate change) and natural disasters occur more frequently, increasing the risk further.
The Coller FAIRR Protein Producer Index has been created which has compiled a list of protein producing companies, giving some insight into the likeliness of some agricultural companies of being stranded. It has ranked many companies in the meat, fish and dairy sector as performing poorly.
The keeping of livestock typically requires a lot of space (see food vs. feed, land use) and isn't isn't very efficient (see agricultural productivity, food vs. feed, feed conversion ratio). There is currently a move towards agricultural systems that don't take up much space (i.e. vertical farms) and are ideally also located near the consumer, to minimize issues in logistics (see local food, Farm-to-table, urban farming, vertical farm). Abandoned buildings near towns can for example be converted to vertical farms which not only achieve the benefits mentioned, but also repurposes the building (which is technically speaking already a stranded asset).
Meadows (required for cattle to graze on) also aren't effective carbon sinks compared to forests (which are projected to increase, see below). The livestock itself also generates huge carbon emissions (see environmental impact of meat production).
In the Netherlands, a transition to a circular agriculture system is underway, which will close the fodder-manure cycle, reuse waste streams, and reduce the use of artificial fertilizers. It also provides the opportunity to agricultural entrepreneurs to sign an agreement with the Staatsbosbeheer ("State forest management") to have it use the lands they lease for natuurinclusieve landbouw ("nature-inclusive management"). This hence allows to help address the space issue (meadows taking up space for forest-based carbon sinks/biosequestration zones). Silvopasture is another solution in this regard.
Other options are also being explored to reduce the impact of livestock on the environment such as genetic selection introduction of methanotrophic bacteria into the rumen, diet modification and grazing management.
Some farmers have started to adopting move towards less meat production (smaller herds), but which is higher in quality (taste) and thus also in price (i.e. by feeding their livestock exclusively or predominantly with grass, ...). See organic farming and ecolabel for details on this mechanism. By using only or predominantly grass, emissions are also typically somewhat lower and taste can be improved.
Regardless of this, some reports still speak of a large decline of livestock at least some animals (e.g. cattle) in certain countries by 2030. The book The End of Animal Farming argues that all animal husbandry will end by 2100.
Milk substitutes, clean meat, meat analogues and single cell protein could then help to address the void created by such a decline of some livestock species. Also, non-ruminant livestock (e.g. poultry) generates far fewer emissions then ruminant livestock.(see environmental impact of meat production)
First-generation biofuels are fuels made from food crops grown on arable land. There has already been a freeze on first-generation biofuels. Also some oils which are used as first-generation biofuels (such as palm oil) are criticized for their impact on the natural environment, including deforestation, loss of natural habitats, and greenhouse gas emissions which have threatened critically endangered species, such as the orangutan and Sumatran tiger.
Regarding forestry, there is currently much interest into reforestation due to the biosequestration potential. The Trillion Tree Campaign aims to replant 1 trillion trees and repair damaged ecosystems. The protecting of areas is also seen as a mechanism that can help boost the carbon sequestration capacity. The European Union, through the EU Biodiversity Strategy for 2030 targets to protect 30% of the sea territory and 30% of the land territory by 2030. Also, Campaign for Nature's 30x30 for Nature Petition tries to let governments agree to the same goal during the Convention on Biodiversity COP15 Summit. has the same target. The One Earth Climate Model advises a protection of 50% of our lands and oceans. It also stresses the importance of rewilding, like other reports. The reason being that predators keep the population of herbivores in check (which reduce the biomass of vegetation), and also impact their feeding behaviour.
Technology change may cause other stranded assets. For example, moving to mobility as a service (in city centers, ... -see carfree city center-) (i.e. through shared vehicles, public transport, ...) may mean that much car manufacturing capacity becomes stranded (unless that car manufacturing capacity can be reused for manufacturing other vehicles, see modal shift, road reallocation, bicycle highway, sustainable&smart mobility).
- Recycling concrete of abandoned buildings
- Carbon bubble
- Carbon offsetting: used by companies to reduce their carbon emissions
- Carbon tax: internal carbon taxes are levied by companies to reduce climate change-related risk exposure
- Climate lawsuit
- Disruptive innovation
- Environmental stewardship
- Economics of climate change
- Ghost town repopulation
- Land recycling
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- Between stranded assets and green transformation
- WEO Special Report 2013, IEA IEA, 2013
- BP’s Energy Outlook Foresees Big Shift For Oil Demand Journal of Petroleum Technology, 14 September 2020
- "ExxonMobil and Synthetic Genomics report breakthrough in algae biofuel research". ExxonMobil.
- See Novamont example at Biorefinery article, subsection examples
- Gravitricity is working on this for instance
- Managing the risk of stranded assets in agriculture and forestry
- Stranded assets in agriculture
- Managing stranded assets and protecting food value chains from natural disasters
- Could climate change make cows the next stranded asset?
- Meat and dairy suppliers put climate commitments of food giants in doubt
- Rethink X: food and agriculture
- Rethinking agriculture report
- Said-Moorhouse, Lauren. "'Vertical farm' blossoms at meatpacking plant". CNN. Retrieved 2019-10-31.
- IPCC Special Report on Land Use, Land-Use Change, and Forestry
- [ https://www.thejournal.ie/farming-climate-change-4770399-Aug2019/ They're telling us the herd needs to be reduced by 50%]
- Bovine genomics project at Genome Canada
- Canada is using genetics to make cows less gassy
- The use of direct-fed microbials for mitigation of ruminant methane emissions: a review
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- Understanding Markets for Grass-Fed Beef: Consumer Taste, Price, and Purchase Preferences
- Eat less meat, of better quality: don’t do it with sadness. Do it with joy!
- Reese, Jacy (6 November 2018). The End of Animal Farming: How Scientists, Entrepreneurs, and Activists are Building an Animal-Free Food System. Boston: Beacon Press. ISBN 9780807039878.
- Livestock Farming Systems and their Environmental Impact
- Clay, Jason (2004). World Agriculture and the Environment. p. 219. ISBN 978-1-55963-370-3.
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- Global protected areas can boost the carbon sequestration capacity
- Protected areas’ role in climate-change mitigation
- The role of protected areas in regard to climate change
- 30x30 for Nature Petition
- Protecting 50% of our lands and oceans
- The natural world can help save us from climate catastrophe
- Effects of gray wolf‐induced trophic cascades on ecosystem carbon cycling
- The Age of Stranded Assets isn't just about Climate Change