Investors and stranded asset risk: evidence from shareholder responses to carbon capture and sequestration (CCS) events

John Byrd and Elizabeth S. Cooperman

Journal of Sustainable Finance & Investment, 2018, vol. 8, issue 2, 185-202

Abstract: To avoid catastrophic climate change risk, the case for fossil fuel reserves not being burned has become stronger. This is particularly the case for coal, as the highest emitter of CO2 per unit of energy, with large portions of coal reserves likely to become stranded assets, posing significant risk to investors. Technology in the past has come to the rescue, so investor valuations may depend on perceptions for the success of technology in reducing stranded asset risk. We examine whether coal company shareholders perceive coal as a technologically stranded asset by studying shareholder reactions to news about CCS (carbon capture and sequestration) technology breakthroughs and setbacks. We find significant positive reactions to CCS breakthroughs, but no reaction for setbacks. This suggests investors have embedded expectations of stranded asset risk into their valuations, but also recognize the significance of successful CCS technology development and deployment for the economic prospects of the coal industry.

Date: 2018
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DOI: 10.1080/20430795.2017.1418063

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