This week is shaping up to be rough for the US coal industry. The EPA is holding hearings on plans to dramatically cut carbon-dioxide emissions released from US power plants and the Obama administration just published a report on the economic consequences of waiting to act on climate change. It’s enough to make one wonder if the US might get serious about climate change. But whether these actions are enough for a group of investors to win the argument over “stranded assets” is another question.
Don’t Put That on My Balance Sheet
A growing number of investors worry that action needed to cap the increase in global temperatures at 2 degrees Celsius will strand assets at oil, gas, coal and utility companies. This is because that 2 degree threshold means keeping two-thirds of proven reserves of fossil fuels in the ground, according to the International Energy Agency (IEA). In other words, it will force fossil fuel companies to take a loss on their balance sheets for untapped assets.
“Investors are wondering if oil and gas companies and coal companies are overvalued because they might not be able to burn some of their reserves in the future,” according to Rob Berridge, director of shareholder engagement at Ceres, a nonprofit organization that tracks shareholder resolutions. These concerns have led some shareholders to divest, while others are pressuring companies to disclose their strategies to deal with the potential for stranded assets.