Macroeconomic impact of stranded fossil fuel assets

• DOI: 10.1038/s41558-018-0182-1
• Publication Date: 2018-05-31T14:20:18Z
• Authors: J.-F. Mercure; H. Pollitt; J. E. Viñuales; N. R. Edwards; P. B. Holden; U. Chewpreecha; P. Salas; I. Sognnaes; A. Lam; F. Knobloch
• Keywords: 13 Climate Action; 38 Economics; 4104 Environmental Management; 0211 other engineering and technologies; 1. No poverty; 02 engineering and technology; 41 Environmental Sciences; 7. Clean energy; 13. Climate action; 8. Economic growth; 7 Affordable and Clean Energy; Environmental Sciences

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 fuels.1-4 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 new climate policies are adopted or not; the loss would be amplified if new climate policies to reach the 2°C target 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 $1-4tn; and there are clear distributional impacts, with winners (e.g. net importers such as China or the EU) and losers (e.g. Russia, the US 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.