Risk Assessment
Identify and mitigate financial risks in decarbonization projects
Your Progress
Section 4 of 5Managing Decarbonization Investment Risks
Risk management separates successful climate investments from failures. Technology risk is front-loaded: New tech (green hydrogen, CCUS) has performance uncertainty—will it work as claimed? Mitigation: Pilot projects, performance guarantees, conservative assumptions in financial models. Policy risk is existential: A $100M investment predicated on $80/tCO2 carbon price becomes uneconomic if policy changes drop it to $30. Mitigation: Diversify geographies, scenario planning, hedge with long-term contracts. Market risk lurks in demand: Green premiums evaporate in recessions. Mitigation: Long-term offtake agreements, target inelastic demand (regulated utilities). Execution risk compounds with scale: Megaprojects (CCUS, green steel) routinely run 50-100% over budget. Mitigation: Fixed-price contracts, phased rollout, contingency reserves. Financial risk bites during refinancing: Projects financed at 4% in 2021 face 8% refinancing in 2024. Mitigation: Lock in long-term fixed rates, build debt service reserves. Stranded asset risk is asymmetric: Carbon-intensive assets (coal plants, diesel fleets) lose value faster than models predict due to regulatory acceleration. Mitigation: Accelerate depreciation, plan orderly retirements.
Interactive Risk Matrix
Explore decarbonization risks by likelihood and impact, with mitigation strategies
Risk Matrix: Likelihood × Impact
💡 Key Insight
Diversification reduces risk without killing returns. Instead of one $50M CCUS project (high risk), deploy 10× $5M efficiency projects (low risk, fast payback). Portfolio approach: 70% proven tech (efficiency, solar), 20% emerging tech (batteries, hydrogen), 10% frontier tech (DAC, green steel). Losses on moonshots offset by wins on bread-and-butter.