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Capital stranding cascades: The impact of decarbonisation on productive asset utilisation

Louison Cahen-Fourot, Emanuele Campiglio (), Antoine Godin (), Eric Kemp-Benedict and Stefan Trsek

Energy Economics, 2021, vol. 103, issue C

Abstract: A timely low-carbon transition will require a significant decline in fossil fuel production and consumption. This in turn exposes the rest of economic sectors to the risk of reduced usability of physical capital stocks via international production network linkages. We propose and apply a simple measure to assess the extent to which fossil shocks might trigger underutilisation of capital stocks across countries and productive sectors (‘stranding multipliers’). Our results highlight the relevance of supply-side transition risks. First, among all productive activities, the global fossil sector exhibits the highest stranding multiplier on the rest of the economic system. Second, some of the most exposed sectors are downstream activities, mainly affected by second-round effects. Third, we rank countries according to their external stranding potential, finding France, Australia and Slovakia at the top, and the USA, Italy and China at its bottom. Finally, we rank countries according to their exposure to stranding risk and analyse more in depth the origins and transmission channels of the stranding links affecting some of the most exposed countries (USA, China and Germany).

Keywords: Low-carbon transition; Asset stranding; Transition risks; Production networks; Capital stocks; Fossil fuels; Supply-side policies (search for similar items in EconPapers)
JEL-codes: C67 E22 L71 O10 Q32 (search for similar items in EconPapers)
Date: 2021
References: View complete reference list from CitEc
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Working Paper: Capital stranding cascades: The impact of decarbonisation on productive asset utilisation (2021) Downloads
Working Paper: Capital stranding cascades: The impact of decarbonisation on productive asset utilisation (2021) Downloads
Working Paper: Capital stranding cascades: The impact of decarbonisation on productive asset utilisation (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:103:y:2021:i:c:s0140988321004515

DOI: 10.1016/j.eneco.2021.105581

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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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