Abstract
The transition towards a low-carbon economy is crucial to achieve the Paris climate goals, but it also presents the risk of stranded assets across various industries. However, existing research has mainly focused on upstream and power sectors, leaving the stranded asset risk of individual assets less understood. This study proposes a real options-based framework for evaluating the stranding risk of carbon-intensive assets. To illustrate its practical application, we apply the framework to a fossil-fuel-powered bulk carrier. The results show that under carbon pricing, the shipowner should expect to bear approximately US$26.5 million of stranded asset risk, which would decrease to US$25.2 million if the ship reduces speed to comply with carbon intensity regulations. We conclude that our framework will enable an adequate assessment of these risks, leading to more practical implications for investment decision-making and supporting climate risk management.
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