The magnitude of energy transition risk embedded in fossil fuel company valuations
This paper examines ExxonMobil, a widely-followed, mature, large oil and gas producer using discounted cash flow valuation modeling under two scenarios: “Business as usual”; and an adequate climate policy response that would limit warming to 1.5C. The analysis across the last two decades shows the m...
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| Format: | Article |
| Language: | English |
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Elsevier
2021-11-01
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| Series: | Heliyon |
| Subjects: | |
| Online Access: | http://www.sciencedirect.com/science/article/pii/S2405844021025032 |
| _version_ | 1818998919464484864 |
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| author | Drew Riedl |
| author_facet | Drew Riedl |
| author_sort | Drew Riedl |
| collection | DOAJ |
| description | This paper examines ExxonMobil, a widely-followed, mature, large oil and gas producer using discounted cash flow valuation modeling under two scenarios: “Business as usual”; and an adequate climate policy response that would limit warming to 1.5C. The analysis across the last two decades shows the market continues to price in a “business as usual” future. ExxonMobil's overvaluation, relative to an adequate policy response scenario, has increased (pre-pandemic) from 50% to 70% of equity value at risk. Investors are taking significant energy transition risk without meaningful compensation. To avoid continued capital misallocation, negative externalities should be incorporated into underwriting. |
| first_indexed | 2024-12-20T22:09:11Z |
| format | Article |
| id | doaj.art-dad6daaca74241d980f1487204168891 |
| institution | Directory Open Access Journal |
| issn | 2405-8440 |
| language | English |
| last_indexed | 2024-12-20T22:09:11Z |
| publishDate | 2021-11-01 |
| publisher | Elsevier |
| record_format | Article |
| series | Heliyon |
| spelling | doaj.art-dad6daaca74241d980f14872041688912022-12-21T19:25:12ZengElsevierHeliyon2405-84402021-11-01711e08400The magnitude of energy transition risk embedded in fossil fuel company valuationsDrew Riedl0Corresponding author.; SC Johnson College of Business, Cornell University, Sage Hall, 106 E Ave, Ithaca, NY 14853, USAThis paper examines ExxonMobil, a widely-followed, mature, large oil and gas producer using discounted cash flow valuation modeling under two scenarios: “Business as usual”; and an adequate climate policy response that would limit warming to 1.5C. The analysis across the last two decades shows the market continues to price in a “business as usual” future. ExxonMobil's overvaluation, relative to an adequate policy response scenario, has increased (pre-pandemic) from 50% to 70% of equity value at risk. Investors are taking significant energy transition risk without meaningful compensation. To avoid continued capital misallocation, negative externalities should be incorporated into underwriting.http://www.sciencedirect.com/science/article/pii/S2405844021025032Energy transitionAsset pricingValuationCarbon riskClimate change |
| spellingShingle | Drew Riedl The magnitude of energy transition risk embedded in fossil fuel company valuations Heliyon Energy transition Asset pricing Valuation Carbon risk Climate change |
| title | The magnitude of energy transition risk embedded in fossil fuel company valuations |
| title_full | The magnitude of energy transition risk embedded in fossil fuel company valuations |
| title_fullStr | The magnitude of energy transition risk embedded in fossil fuel company valuations |
| title_full_unstemmed | The magnitude of energy transition risk embedded in fossil fuel company valuations |
| title_short | The magnitude of energy transition risk embedded in fossil fuel company valuations |
| title_sort | magnitude of energy transition risk embedded in fossil fuel company valuations |
| topic | Energy transition Asset pricing Valuation Carbon risk Climate change |
| url | http://www.sciencedirect.com/science/article/pii/S2405844021025032 |
| work_keys_str_mv | AT drewriedl themagnitudeofenergytransitionriskembeddedinfossilfuelcompanyvaluations AT drewriedl magnitudeofenergytransitionriskembeddedinfossilfuelcompanyvaluations |