Keeping within 2°C of global warming could leave US$500bn in stranded power sector assets in the US, Asia Pacific and Europe, according to a recent study.

Fossil fuel power plants will need to be retired decades sooner than has been done historically, and almost 2.8 terawatts of capacity must be decommissioned early worldwide, says Angelika von Dulong, a researcher at Berlin’s Humboldt University and author of the study.

This process – known as asset stranding – is needed to achieve the Paris Agreement goal of limiting warming to 2°C by 2100, but leaves owners of those assets unable to recover capital costs.

The study compares the climate-compatible capacity of fossil fuel power plants globally with the operating capacity in a given year and region to identify plants that have to be stranded between 2021 – the year the study starts from – and 2050.

According to the study, the value of assets that will be stranded as a result of current climate pledges – including 2030 pledges and net-zero targets – totals US$212bn.

But this leaves an “ambition gap” of almost US$300bn between what governments have currently pledged and the stranding needed to keep within the International Energy Agency’s sustainable development scenario, which outlines how much regional fossil fuel power capacity is permissible to keep Earth in line with the 2°C goal.

The study calculates this total in terms of sunk costs, but not lost profits. This is based on overnight capital costs, which include a power plant’s pre-construction, construction and contingency costs and excludes interest during its construction, as if it had been built overnight.

“Stranded assets in terms of lost profits may be a lot higher with important implications for the feasibility of climate policies,” von Dulong says.

For listed parent owners, stranded assets could total up to US$24 per share outstanding or 78% of their share price, the study claims.

Asia Pacific, Europe and the US are particularly exposed to stranded assets, the study finds. Asia Pacific countries excluding China, India and Japan make up around US$100bn of the gap, while India, China and non-EU countries in Europe have shortfalls of US$80bn, US$60bn and US$33bn, respectively.

The study says that this might lead asset owners to resist more stringent climate policies.

“Opposition to climate policies fostering a sustainable development may be particularly strong if such policies result in more stranded assets than those under currently announced policies,” von Dulong suggests.

How stranded assets in the power sector are distributed between direct and parent owners varies by country. The majority of stranded assets in India are held by one owner, but are more equally distributed in the US.

The study finds that “resistance to climate policies may be moderated if affected asset owners are also invested in alternative energy assets”, defined as renewable and nuclear energy power plants. This again varies by country, with China owning significant alternative energy capacities in comparison to India.

Details of how governments plan to phase out fossil fuels continue to be debated ahead of Cop28, which begins in Dubai at the end of November.

This week the EU laid out its plans for negotiating a fossil fuel phase-out agreement, due to be hammered out during the climate change conference.

While it reiterates “the importance for the energy sector to be predominantly free of fossil fuels well ahead of 2050”, critics have picked up on the dropping of a 2025 deadline for phasing out “inefficient fossil fuel subsidies”, which currently provide the sector with billions of dollars worldwide.