Macroeconomic impact of stranded fossil-fuel assets
Nature Climate Change
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Mercure, J., Pollitt, H., Vinuales, J., Edwards, N., Holden, P., Chewpreecha, U., Salas, P., et al. (2018). Macroeconomic impact of stranded fossil-fuel assets. Nature Climate Change https://doi.org/10.1038/s41558-018-0182-1
Several major economies rely heavily on fossil-fuel production and exports, yet current low-carbon technology diffusion, energy efficiency and climate policy may be substantially reducing global demand for fossil fuels.1-4 This trend is inconsistent with observed investment in new fossil-fuel ventures1,2, which could become stranded as a result. Here we use an integrated global economy environment simulation model to study the macroeconomic impact of stranded fossil-fuel assets (SFFA). Our analysis suggests that part of the SFFA would occur as a result of an already ongoing technological trajectory, irrespective of whether new climate policies are adopted or not; the loss would be amplified if new climate policies to reach the 2°C target are adopted and/or if low-cost producers (some OPEC countries) maintain their level of production (‘sell-out’) despite declining demand; the magnitude of the loss from SFFA may amount to a discounted global wealth loss of $1-4tn; and there are clear distributional impacts, with winners (e.g. net importers such as China or the EU) and losers (e.g. Russia, the US or Canada, which could see their fossil-fuel industries nearly shut down), although the two effects would largely offset each other at the level of aggregate global GDP.
The authors acknowledge C-EERNG and Cambridge Econometrics for support, and funding from EPSRC (JFM, fellowship no. EP/ K007254/1); the Newton Fund (JFM, PS, JV, EPSRC grant no EP/N002504/1 and ESRC grant no ES/N013174/1), NERC (NRE, PH, HP, grant no NE/P015093/1), CONICYT (PS), the Philomathia Foundation (JV), the Cambridge Humanities Research Grants Scheme (JV), and Horizon 2020 (HP, JFM; Sim4Nexus project).
Newton Fund (via EPSRC) (unknown)
Economic and Social Research Council (ES/N013174/1)
External DOI: https://doi.org/10.1038/s41558-018-0182-1
This record's URL: https://www.repository.cam.ac.uk/handle/1810/277284