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The risk of policy tipping and stranded carbon assets
The risk of policy tipping and stranded carbon assets
- Source :
- van der Ploeg, F & Rezai, A 2020, ' The risk of policy tipping and stranded carbon assets ', Journal of Environmental Economics and Management, vol. 100, 102258 . https://doi.org/10.1016/j.jeem.2019.102258, Journal of Environmental Economics and Management, 100:102258. Academic Press Inc.
- Publication Year :
- 2020
-
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.
- Subjects :
- Market capitalization
Economics and Econometrics
Natural resource economics
502047 Volkswirtschaftstheorie
Management, Monitoring, Policy and Law
502027 Politische Ökonomie
0502 economics and business
Economics
SDG 13 - Climate Action
502027 Political economy
050207 economics
Green paradox
Discoveries
Exploration investment
Valuation (finance)
Stranded carbon assets
502042 Umweltökonomie
business.industry
05 social sciences
Global warming
Fossil fuel
502046 Volkswirtschaftspolitik
502042 Environmental economics
Subsidy
502046 Economic policy
Adjustment costs
Stock prices
Botched climate policies
Irreversible capital
502047 Economic theory
Profitability index
050202 agricultural economics & policy
Natural capital
Policy tipping
business
Subjects
Details
- Language :
- English
- ISSN :
- 00950696
- Database :
- OpenAIRE
- Journal :
- van der Ploeg, F & Rezai, A 2020, ' The risk of policy tipping and stranded carbon assets ', Journal of Environmental Economics and Management, vol. 100, 102258 . https://doi.org/10.1016/j.jeem.2019.102258, Journal of Environmental Economics and Management, 100:102258. Academic Press Inc.
- Accession number :
- edsair.doi.dedup.....b868ce54b25662eb9b43f07fbb4392fa
- Full Text :
- https://doi.org/10.1016/j.jeem.2019.102258