Stranded asset implications of the Paris Agreement in Latin America and the Caribbean

Abstract

Achieving the Paris Agreement's near-term goals (nationally determined contributions, or NDCs) and long-term temperature targets could result in pre-mature retirement, or stranding, of carbon-intensive assets before the end of their useful lifetime. We use an integrated assessment model to quantify the implications of the Paris Agreement for stranded assets in Latin America and the Caribbean (LAC), a developing region with the least carbon-intensive power sector in the world. We find that meeting the Paris goals results in stranding of $37-90 billion and investment of $1.9-2.6 trillion worth of power sector capital (2021-2050) across a range of future scenarios. Strengthening the NDCs could reduce stranding costs by 27%-40%. Additionally, while politically shielding power plants from pre-mature retirement or increasing the role of other sectors (e.g. land-use) could also reduce power sector stranding, such actions could make mitigation more expensive and negatively impact society. For example, we find that avoiding stranded assets in the power sector increases food prices 13%, suggesting implications for food security in LAC. Our analysis demonstrates that climate goals are relevant for investment decisions even in developing countries with low emissions.