The Open UniversitySkip to content
 

Low-carbon transition risks for finance

Semieniuk, Gregor; Campiglio, Emanuele; Mercure, Jean-Francois; Volz, Ulrich and Edwards, Neil R. (2019). Low-carbon transition risks for finance. Wiley Interdisciplinary Reviews: Climate Change (In Review).

Full text available as:
[img] PDF - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Download (1MB)
Google Scholar: Look up in Google Scholar

Abstract

Transition risks for finance arise from the transition to a low-carbon economy, which can disrupt the ability of carbon-intensive industries to meet their financial obligations and lead to abrupt changes in asset valuations of affected firms. An understanding of these risks is key for any ambitious emissions reduction programme, such as that implied by the Paris Agreement. Insight from theory and study of past transitions is of limited help, as these see financial risks mostly flowing from speculation with rising industries propped up by a set of new high-productivity technologies. The current transition instead requires policy to quickly render a set of currently productive high-carbon industries unprofitable, stranding their assets, so the risks are located in the declining industries. Absent a unified framework of the interaction of real and financial aspects of the transition, one set of studies conceptualises and quantifies asset stranding and other transition costs in declining industries, and a separate one estimates the potential impact of these transition costs on the financial system. Combining these two research strands and modelling the feedback of financial distress on the real economy will require more research, which could help integrate transition risks into the cost analysis of mitigation in integrated assessment models. An important insight from the past transitions literature is that once low-carbon industries are rendered more profitable than high-carbon ones, financial risks could also build in these newly rising industries.

Item Type: Journal Item
ISSN: 1757-7799
Project Funding Details:
Funded Project NameProject IDFunding Body
Financial risk and the impact of climate change724409NERC
Not SetNot SetSwedish Foundation for Strategic Environmental Research
Not SetNot SetOesterreichische Nationalbank
Keywords: Transition risks; low-carbon economy; declining industries; stranded assets; financial distress
Academic Unit/School: Faculty of Science, Technology, Engineering and Mathematics (STEM) > Environment, Earth and Ecosystem Sciences
Faculty of Science, Technology, Engineering and Mathematics (STEM)
Item ID: 68491
Depositing User: Neil Edwards
Date Deposited: 13 Dec 2019 13:43
Last Modified: 10 Mar 2020 04:33
URI: http://oro.open.ac.uk/id/eprint/68491
Share this page:

Download history for this item

These details should be considered as only a guide to the number of downloads performed manually. Algorithmic methods have been applied in an attempt to remove automated downloads from the displayed statistics but no guarantee can be made as to the accuracy of the figures.

Actions (login may be required)

Policies | Disclaimer

© The Open University   contact the OU