Quotation Semieniuk, Gregor, Campiglio, Emanuele, Mercure, Jean-Francois, Volz, Ulrich, Edwards, Neil R. 2021. Low‐carbon transition risks for finance. WIREs Climate Change. 12 (1)


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Abstract

The transition to a low‐carbon economy will entail a large‐scale structural change. Some industries will have to expand their relative economic weight, while other industries, especially those directly linked to fossil fuel production and consumption, will have to decline. Such a systemic shift may have major repercussions on the stability of financial systems, via abrupt asset revaluations, defaults on debt, and the creation of bubbles in rising industries. Studies on previous industrial transitions have shed light on the financial transition risks originating from rapidly rising “sunrise” industries. In contrast, a similar conceptual understanding of risks from declining “sunset” industries is currently lacking. We substantiate this claim with a critical review of the conceptual and historical literature, which also shows that most literature either examines structural change in the real economy, or risks to financial stability, but rarely both together. We contribute to filling this research gap by developing a consistent theoretical framework of the drivers, transmission channels, and impacts of the phase‐out of carbon‐intensive industries on the financial system and on the feedback from the financial system into the rest of the economy. We also review the state of play of policy aiming to protect the financial system from transition risks and spell out research implications.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal WIREs Climate Change
Citation Index SSCI
Language English
Title Low‐carbon transition risks for finance
Volume 12
Number 1
Year 2021
URL https://onlinelibrary.wiley.com/doi/10.1002/wcc.678
DOI http://dx.doi.org/10.1002/wcc.678
Open Access Y
Open Access Link https://onlinelibrary.wiley.com/doi/pdf/10.1002/wcc.678

Associations

People
Campiglio, Emanuele (Details)
External
Edwards, Neil R. (University of Cambridge, United Kingdom)
Mercure, Jean-Francois (University of Exeter, United Kingdom)
Semieniuk, Gregor (University of Massachusetts Amherst, United States/USA)
Volz, Ulrich (University of London, United Kingdom)
Organization
Institute for Ecological Economics IN (Details)
Research areas (ÖSTAT Classification 'Statistik Austria')
1909 Resource economics, - management (Details)
2928 Environmental economics (Details)
2959 Sustainable development, sustainable economics (Details)
5371 Macroeconomics (Details)
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