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Putting a Price on the Risk of Climate Change

Efforts to slow global warming threaten to turn energy investments into “stranded assets.”

A pumpjack in Midland, Tx.

A pumpjack in Midland, Tx.

Photographer: Callaghan O'Hare/Bloomberg

The top 10 energy companies are planning investments approaching $1 trillion by 2030, in everything from finding and tapping new fields to equipment ranging from drones to drilling rigs. If the oil and gas business rolls along as it has for the past century, those projects will likely pay off in fat profits for shareholders. But some analysts and investors warn that the value of much of that infrastructure risks falling to zero.

If governments make good on tough targets for cutting greenhouse gas emissions, consumption of carbon-based fuels will fall, and prices would soon follow. The viability of hard-to-reach developments such as deep-sea sites would drop even more rapidly—becoming what some are calling “stranded assets.” The basic idea is that it makes no sense to spend $40 extracting a barrel of oil you can sell for only $35. Which would mean a lot of investment will have been wasted.