Linking capital assets’ sunk CO2 to transition risk. – Evidence from Australian carbon-intensive industries

Abstract

This thesis makes a unique contribution to the environmental economics literature by demonstrating a novel negative implication of future capital investment into Carbon Intensive Industries (CII). It has been well documented that a Net Zero disorderly transition results in CII stranded capital assets. This thesis builds on the literature by investigating the indirect implications of embodied greenhouse gas (GHG) emissions within capital assets at risk of stranding, referred to as ‘Sunk CO2’.

This thesis uses an Australian case study to illustrate the scale of CII Sunk CO2 – a novel application of the Legacy Environmental Footprint (LEF) methodology from Wang et al (2023). It finds that CII including carbon-intensive electricity production and air transport have significant volumes of Sunk CO2. Further, the long lifespan of these capital assets means any further capital investment within these sectors will likely cause an additional proportion of Sunk CO2 to become stranded in a disorderly climate transition. Therefore, minimising future CII capital investment is necessary to avoid both the economic and environment consequences of asset stranding. To fully integrate the impacts of capital divestment and stranded capital assets into decarbonisation plans, measurements of Sunk CO2 must be included. Incorporating measurements of Sunk CO2 into sectoral divestments may in turn ultimately improve the effectiveness of Australia’s plan to decarbonise by 2050.