Whose Problem is Fossil Fuel Stranding?

Net zero requires the premature retirement of fossil fuel assets worth hundreds of billions of dollars. Fossil fuel stranding has usually been approached from the perspective of finance, as a new category of investment risk. I challenge this orthodox view in a paper of three steps. In the first step, I reconstruct the history of the concept, and argue that fossil fuel stranding is best understood as a socio-technical device that is designed to do work within finance. At its heart is a technique of what I call ‘proleptic valuation’: constructing scenarios of the energy transition to forecast future losses to fossil fuel assets so that capital flows can be pre-emptively reorganised today. In a second step, I identify two key limitations to this extant approach to fossil fuel stranding. First, its unreality: it relies on normative targets and cost-optimising economic models to conjure these carbon futures, and flattens assets into repositories of future monetary value, not complexly embedded parts of energy and production systems. Second, its functional subordination to finance: it is interested solely in the financial consequence of stranding for private investors. It overlooks the political economy of the state-led energy transition: of how state transition policy drives stranding risks, and how stranding risks shape state transition policy, within a messy world of politics and conflict and uncertainty. In a third step, I offer a first-cut framework for analysing the political economy of how states confront fossil fuel stranding within the energy transition. States have to manage their exposure to the direct and indirect costs of stranding, orchestrate the orderly phase-out of fossil fuel assets, and uphold the political legitimacy of this project of decline. I explore cases along a two-by-two matrix: upstream producers and midstream importers, and private and public ownership. I then analyse the stranding challenges and strategies of states occupying each of these four possible quadrants.