Quotation van der Ploeg, Frederick, Rezai, Armon. 2020. The risk of policy tipping and stranded carbon assets. Journal of Environmental Economics and Management. 100 10225


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Abstract

If global warming is to stay below 2 °C, there are four risks of assets stranding. First, substantial fossil fuel reserves will be stranded at the end of the fossil era. Second, this is true for exploration capital too. Third, unanticipated changes in present or expected climate policy cause discrete jumps in today's valuation of physical and natural capital. Fourth, if timing and intensity of climate policy are uncertain, revaluation of assets occurs as uncertainty about future climate policy is resolved. To highlight these four effects, we use an analytical model of investment in exploration capital with intertemporal adjustment costs, reserves depletion and market capitalization, and calibrate it to the global oil and gas industry. Climate policy implements a carbon budget commensurate with 2 °C peak warming and we allow for immediate or delayed carbon taxes and renewable subsidies. The social welfare ranking of these instruments is inverse to that of the oil and gas industry which prefers renewable subsidy and delaying taxes for as long as possible. We also pay attention to how the legislative “risk” of tipping into policy action affects the timing of the end of the fossil era, the profitability of existing capital, and green paradox effects.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Journal of Environmental Economics and Management
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, STRAT-B, VW-B, WH-B
Language English
Title The risk of policy tipping and stranded carbon assets
Volume 100
Year 2020
Page from 10225
Reviewed? Y
DOI https://doi.org/10.1016/j.jeem.2019.102258
Open Access N

Associations

People
Rezai, Armon (Details)
External
van der Ploeg, Frederick (University of Oxford, United Kingdom)
Organization
Competence Center for Sustainability Transformation and Responsibility WE (Details)
Economics of Inequality FI (Details)
Socioeconomics of Work AB (Details)
Research areas (ÖSTAT Classification 'Statistik Austria')
2928 Environmental economics (Details)
5325 Political economics (Details)
5334 Political economic policy (Details)
5335 Political economic theory (Details)
5341 Economic policy (Details)
5353 Environmental economics (Details)
5924 Environmental economics (Details)
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