(C) Daily Kos This story was originally published by Daily Kos and is unaltered. . . . . . . . . . . AntiCapitalist MeetUp: modeling corporate stranded assets, especially those with climate impacts [1] ['This Content Is Not Subject To Review Daily Kos Staff Prior To Publication.'] Date: 2023-06-25 I’m putting together a research proposal that addresses climate crisis effects and political economic methodology for taxing the wealthy who own the bulk of stranded assets and associated financial losses. The article used as a touchstone is (Birch and Ward 2022). Below are some initial notes appearing as shabby as Mar-a-Lago boxes. How tangible/intangible are stranded assets and what are their relation to the larger questions of sustainability? Is assetization the appropriate modeling methodology? Is goodwill assetizable? Intangible assets c ould be modeled as favorable or unfavorable contracts signified by the pattern of write-downs in a region and measure both market conditions and ideology (see below sugar refinery article) assets What does this spatial data look like, would there be use in modeling the space of accounting impairment tests, remembering that asset mapping is always ecosystem mapping. how would such mapping compare with maps of environmental risk Is a stranded asset a form of Jason Moore’s “cheap nature”? Is financial accounting also an instrument of value-form and a stranded asset and under what condition can a stranded asset be converted into a liability What kinds of accounting standards are used: e.g. International Financial Reporting Standards (IFRS) or GAAP Under IFRS, the asset’s carrying value is compared to (1) the fair value less costs to sell the asset and (2) the fair value in use (the present value of future cash flows generated by the asset). If the carrying amount exceeds either the greater of either fair value less costs to sell or fair value in use, the asset is considered impaired. is compared to (1) and (2) the (the present value of future cash flows generated by the asset). If the carrying amount exceeds either the greater of either fair value less costs to sell or fair value in use, the asset is considered impaired. Under GAAP, the asset’s carrying value (original cost – accumulated depreciation) is compared with the undiscounted future cash flows (UFCF) generated by the asset. If the carrying amount exceeds the UFCF, the asset is considered impaired. An asset is both a resource and property, in that it generates income streams with its sale price based on the capitalization of those revenues. Although an asset's income streams can be financially sliced up, aggregated, and speculated upon across highly diverse geographies, there still has to be something underpinning these financial operations. Something has to generate the income that a political economic actor can lay claim to through a property or other right, entailing a process of enclosure, rent extraction, property formation, and capitalization. Geographers and other social scientists are producing a growing literature illustrating the range of new (and old) asset classes created by capitalists in their search for revenue streams, for which we argue assetization is a necessary concept to focus on the moment of enclosure and rent extraction. It is a pressing task for human geographers to unpack the diverse and contingent ‘asset geographies’ entailed in this assetization process. As a middle range concept and empirical problematic, we argue that assetization is an important focal point for wider debates in human geography by focusing attention on the moment of enclosure, rent extraction, and material remaking of society which the making of a financial asset implies. journals.sagepub.com/... STRANDED ASSETS Cost Exposure One definition of stranded costs captures the major issues. It could be expanded to include costs of assets that have been constrained by public policy. “Stranded Costs are the book costs of existing utility investments that have traditionally been recovered in a regulated utility’s rates but would not be recoverable in a competitive market. In essence, in a competitive market, a utility cannot charge a price high enough to recover stranded costs because rivals will be willing to supply electricity at a lower price. An example of the costs that would be stranded in a transition to competition are those associated with nuclear power plants that cost far more to build than conventional power plants.”1The treatment of stranded costs depends on many issues, but a key element is the role of public policy outside of typical market forces. Stranded assets are assets invested in polluting sectors and that are at risk of loss of value because of climate policies. We show that the wealthiest 10% will bear most of stranded asset financial losses (65% of total losses in the US and 75% on average in the EU). www.nature.com/... measuring goodwill ​​​​​​ write-downs A downward adjustment in the value of an asset. A depreciation, or a lowering in the price or value of something. (accounting) reduction in the book value of an asset. Stranded assets are assets that are unable to earn their original economic return. Stranded assets impact both the balance sheet (reducing asset value) and income statement (non-cash loss). An impairment test can determine whether an asset is stranded. Stranded assets are assets that faced: Unexpected write-downs Premature write-downs Devaluations Conversion into liabilities At an extreme, stranded assets may face obsolescence and, as a result, be written off a company’s balance sheet entirely, with the resulting loss reflected on the income statement. Stranded assets arise due to unexpected negative changes in the assets earning power, caused primarily by external factors. For example, a machine used solely to produce gas-powered cars is likely to be considered a stranded asset as society becomes more environmentally conscious and increases its adoption of electric vehicles. As a result, the machine’s economic return would become impaired as it produces fewer gas-powered cars than originally intended. Another stranded asset example: Example: A company reports under GAAP and is an operator of oil platforms. Due to the growing popularity of clean energy, management expects its oil platforms, currently at a carrying value of $5,000,000, to only be able to generate total undiscounted future cash flows of $3,000,000. Question: Are the oil platforms considered impaired? If so, what would be the appropriate journal entries? Answer: Under GAAP, the oil platforms are considered impaired, as the carrying value is above the total undiscounted future cash flows generated. An impairment loss of $2,000,000 would be necessary. The journal entries would be as follows: Stranded Assets in an Environmentally Friendly Society With progression towards a greener society and investors pursuing clean energy investments, fossil fuel companies’ assets are set to become stranded. According to a study, one to four trillion US dollars could be wiped off global fossil fuel assets as future demand for fossil fuel decreases. For example, in the wake of the 2020 coronavirus pandemic, a downbeat view on longer-term oil prices, and countries pursuing the Paris Agreement climate goals, oil giant British Petroleum Company Plc reported plans to write down the value of its assets by USD 13-13.7 billion. Not only are oil and gas companies facing stranded assets in the pursuit of a greener society – traditional car manufacturers are facing the same fate. Regulators in various jurisdictions are currently pursuing the electrification of cars to decrease carbon dioxide emissions For example, China intends to make all new vehicles sold in 2035 eco-friendly, and Japan plans to stop the sale of gas-powered cars by the mid-2030s. In the U.S., California Governor Gavin Newson signed an executive order in 2020 stating that all vehicles sold in the state of California must be emission-free by 2035. Currently, carmakers are in a race to update or modify factories dedicated to producing internal combustion engines to avoid them from becoming stranded. Furthermore, the joint MDB Working Group on Paris Alignment is considering applying shadow carbon pricing as a possible means to assess stranded assets, taking into account the climate risks (particularly the transitional risks) and their potential impact on the financial and economic viability of the project. www.aiib.org/... What Are Climate-Related Physical and Transition Risks? Every sector is likely to be impacted by some combination of climate-related physical (Figure 1) and transition risks (Figure 2), including agriculture, energy, forestry, and tourism. According to the Bank of England, “physical risks are a result of climate and weather-related events, such as heatwaves, droughts, floods, storms and sea level rise. They can potentially result in large financial losses, impairing asset values and the creditworthiness of borrowers. Transition risks result from the process of adjustment toward a low-carbon economy. Changes in policy, technology and sentiment could prompt a reassessment of the value of a large range of assets and create credit exposures for banks and other lenders as costs and opportunities become apparent.”4 In the energy sector, there are various transitional and physical risks that can lead to the stranding of fossil fuel infrastructure investments such as government policies (e.g., carbon pricing, air pollution regulations), financial (e.g., high fossil fuel prices, low-cost renewables), behavior (e.g., evolving social norms and needs) and environmental considerations (e.g., climate change, water scarcity, proximity to national parks), among many others. www.aiib.org/... 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