Macroeconomic impact of stranded fossil fuel assets

Jean-Francois Mercure (), Hector Pollitt, J. E. Viñuales, N. R. Edwards, P. B. Holden, U. Chewpreecha, P. Salas, I. Sognnaes, Aileen Lam and F. Knobloch
Additional contact information
J. E. Viñuales: University of Cambridge
N. R. Edwards: University of Cambridge
P. B. Holden: The Open University
U. Chewpreecha: Cambridge Econometrics Ltd, Covent Garden
P. Salas: University of Cambridge
I. Sognnaes: University of Cambridge
F. Knobloch: Radboud University

Nature Climate Change, 2018, vol. 8, issue 7, 588-593

Abstract: Abstract 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 fuels1–4. 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 or not new climate policies are adopted; the loss would be amplified if new climate policies to reach the 2 °C target of the Paris Agreement 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 US$1–4 trillion; and there are clear distributional impacts, with winners (for example, net importers such as China or the EU) and losers (for example, Russia, the United States 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.

Date: 2018
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DOI: 10.1038/s41558-018-0182-1

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