Investment losses from climate action would mostly affect the super-wealthy, according to a new study. The findings contradict arguments made by opponents of climate action that climate policies would harm regular people by eroding pensions and savings.
Past studies have estimated the magnitude of so-called ‘stranded assets’—fossil fuel investments that would lose value because of ambitious climate policy and rapid decarbonization. But researchers didn’t know whose portfolios would be most affected by these losses.
In the new study, researchers traced the ownership of investments in more than 40,000 oil and gas fields. They modeled the effect of these investments becoming stranded assets based on the overall distribution of wealth and financial holdings in both the United States and Europe.
The researchers assumed that each wealth category holds the same proportion of fossil-fuel assets as they hold of national wealth overall. That is, any given investment dollar has the same probability of being invested in fossil fuels, regardless of whether it is held by people at the top or bottom of the wealth distribution.
In the United States, stranded oil and gas assets could result in the loss of roughly $350 billion of wealth from climate action in line with holding global warming to 2 °C. Two-thirds of these financial losses would affect the wealthiest top 10%, the researchers report in the journal Joule. The top 1% bear about one-third of the total and the next 9% an additional one-third.
The researchers found similar patterns in the UK and Europe, where the overall losses would amount to $200 billion.
However, these losses would represent a small percentage of rich people’s overall wealth—less than 1% of the net wealth of the top 1% in the United States, the researchers calculated. Even more aggressive climate action, in line with holding global warming to 1.5 °C, would cause the most affluent people to lose just 2% of their wealth.
“Top wealth groups own most of the losses yet appear to be protected by their considerable overall wealth,” the researchers write.
The picture is a little bit different for the bottom 90% of the population, who would bear the remaining one-third of wealth losses from stranded oil and gas assets. Only 3.5% of the total wealth losses would impact the poorest half of the population, but the losses would take a much bigger bite out of individual wealth for this group.
“A key observation is that the bottom 50% own little net wealth to start with, independently of any potential stranded assets losses,” the researchers write. “Therefore, even small absolute losses can be substantial as a share of net wealth.” This is particularly true in the UK and the United States, where some pension funds hold fossil fuel assets.
Still, the loss of wealth affecting lower-income people would be pretty small in absolute terms, amounting to about $9 billion in Europe and $12 billion in the United States. These sums are small enough that governments could compensate investors, making them whole with revenue from a carbon tax or a wealth tax, among other possibilities.
“Stranded assets appear to be disproportionately concentrated among the very well-off and losses can be compensated at relatively low cost among the poor,” the researchers write.
“We argue that governments should not be deterred by the risk of stranded fossil-fuel assets because any resulting wealth loss that causes economic hardship can be compensated at low cost,” they add.
Source: Semeniuk G. et al. “Potential pension fund losses should not deter high-income countries from bold climate action.” Joule 2023.
Image: ©Anthropocene Magazine.