across sectors and countries, rather than just stranding the assets. The assets that no longer yield returns expected by owners in the worst affected sectors are stranded to them, but not necessarily to the economy. Some capital is gradually reallocated to other, more productive uses in other sectors, reducing the economy-wide costs associated with structural transformation and creating winners and losers during a transition. Produced (material and intangible) assets can be easier to reallocate to other productive uses than can underground reserves. Most fossil fuel assets are used in combustion processes to produce energy. Smaller quantities of fossil fuels are used in industrial processes as feedstocks to produce synthetic materials, plastics, fertilizers, and so on. Therefore, unless new, noncombustible uses for fossil fuels are found at the scale comparable with energy generation, they cannot easily be reallocated to other economic activities. The obverse of the stranded asset risk is the upside that technology developments combined with climate and diversification policies may increase the value of produced assets in the non-fuel-dependent sectors. The structural transformation can increase the profits of knowledge-intensive, clean economic activities. It also implies substitution of human and natural renewable capital as well as intangibles for produced material and natural exhaustible assets. These effects cannot be captured well by the economic models. But if these low-carbon asset classes are underdeveloped in a country, as is the case in some developing FFDCs, significant investment and policy effort will be required before new assets can generate the flow of welfare and income that would match the profits lost from the old, fossil fuel–intensive asset classes. Eventually, this leads to a structural and systemic transition to a “dematerialized” longterm sustainable growth model, where fewer material inputs generate higher economic output and welfare. It is a shift from a capital-intensive growth model to a more labor- and knowledgeintensive growth model. A low-carbon future is its co-benefit.

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