Definition and taxonomy of stranded assets

A stranded asset is broadly defined as any investment or physical asset ‘whose investment value cannot be recouped and must be written off’ due to external changes. In climate-finance terms, stranded assets typically arise when carbon-intensive resources (like coal, oil or gas reserves) become unburnable under emissions limits and carbon budgets, or infrastructure (power plants, refineries, factories, vehicles, buildings) is retired before the end of its useful life.

The concept is not unique to any country: for example, Robeco notes that major oil and coal reserves could be stranded if Paris Agreement targets are met. In India, this translates into assets such as coal mines, thermal power stations, lignite fields, outdated vehicles, and fossil-fuel-based industrial plants. We can classify stranded assets in several ways.
By type:

  1. Resource assets such as coal reserves or gas fields left unexploited;
  2. Infrastructure of power plants, refineries, or pipelines shuts down prematurely;
  3. Consumer assets such as fleets of internal combustion vehicles or buildings that lose value under new standards.

By driver:

  1. assets stranded by policy / regulatory shifts (e.g. a ban on diesel vehicles),
  2. market / economic shifts (e.g. plummeting coal prices relative to renewables),
  3. technological change (e.g. EVs supplant ICE vehicles), or
  4. social / legal pressures (e.g. litigation or public opposition leading to closures).

The IPCC highlights economic, regulatory, and physical stranding as key channels. In India, one useful taxonomy is by sector, and another is by financial instrument.

For example, banks consider stranded risks in their loan portfolios or bond holdings. Accounting rules also classify assets as impaired if their recoverable amount falls below their carrying value. Figure 1 briefly explains the impact of stranded assets on the banking sector.

Conceptually, one can distinguish completed but idle assets (e.g. coal plants running at 10 percent capacity) from assets under construction that may never be finished (e.g. cancelled power projects).

For this article, we use ‘stranded assets’ broadly to include any high-carbon resources or infrastructure in India whose economic value will be significantly reduced by the energy transition.

India’s net-zero commitments and policy timeline

India has made several high-profile commitments and policies on climate that will drive the risk of stranded assets. Nationally Determined Contributions (NDCs):

Under the Paris Agreement, India’s first NDC (2015) pledged to reduce emissions intensity by 33-35 percent by 2030 (from 2005 levels) and to have 40 percent of electric power capacity from non-fossil sources by 2030. In 2021 at COP26, PM Narendra Modi announced the ‘Panchamrit’ targets:

  1. 500 GW non-fossil capacity by 2030;
  2. meeting 50 percent of energy needs from renewables by 2030;
  3. reducing cumulative emissions by 1 billion tonnes by 2030;
  4. cutting carbon intensity by 45 percent by 2030; and
  5. achieving net-zero emissions by 2070.

These pledges were written into India’s new NDC in March 2026, which further set an emissions-intensity target of 47 percent below 2005 by 2035, a non-fossil share of 60 percent by 2035, and increased land-carbon sink targets. Key domestic policies echo these goals.

For example, India’s Union Budget has long included a ‘Clean Energy Cess’ (now subsumed into a ‘Cess on coal’) to internalise some carbon cost. The Electricity Act and subsequent amendments empower states to promote renewables through Renewable Purchase Obligations (RPOs) and competitive auctions. The government’s UDAY scheme (2015) addressed stressed state discoms that hold thermal-asset debt, indirectly enabling a transition by reducing subsidy dependence.

The FAME program (Faster Adoption and Manufacturing of EVs, 2015-2025) incentivised electric vehicles, reducing future oil demand. Fuel / equipment standards have tightened (for instance, India leapfrogged to BS-VI emission norms for diesel vehicles by 2020). Regulatory steps like stricter building energy codes (ECBC) and grid connectivity policies for solar / wind (e.g. Green Energy Corridor) also push the transition.

 
To read more, please subscribe.