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Macroeconomic impact of stranded fossil-fuel assets

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Mercure, Jean-Francois 
Pollitt, Hector 
Vinuales, Jorge E 
Edwards, Neil 
Holden, Phil 


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.



38 Economics, 4104 Environmental Management, 41 Environmental Sciences, 13 Climate Action, 7 Affordable and Clean Energy

Journal Title

Nature Climate Change

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Springer Nature
Newton Fund (via EPSRC) (unknown)
Economic and Social Research Council (ES/N013174/1)
Engineering and Physical Sciences Research Council (EP/K007254/1)
Engineering and Physical Sciences Research Council (EP/N002504/1)
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).