Context and aims
Financial researchers, regulators, and practitioners increasingly recognize the materiality of transition risks: risks to firms, assets, and the broader economy arising from adjustments consistent with low-carbon pathways. A key channel is asset stranding, i.e. premature retirement or persistent underutilisation of high-emitting assets as policy, technology, and demand evolve. Existing work has largely assessed these risks at aggregate or sectoral levels. This project leverages asset-level emissions and facility data to quantify how NGFS scenarios translate into spatially concentrated transition shocks, and to assess their localized socioeconomic and environmental implications.
The project is structured in three stages. The first stage would operate at the global level. The goal would be to map emitting facilities and their supply-chain interconnections, and to measure their exposure and vulnerability to transition risks. This stage would also construct scenario-consistent indicators of potential asset stranding. The purpose is to build the structural mapping necessary to identify spatial concentrations of transition exposure.
The second stage would then focus on one or several specific region, where the transition risks have already materialized, such as Northern France. The materialization of past transition shocks (for example, the shutdown of a coal plant) could be exploited as quasi-natural experiments. This would allow for the estimation of causal effects on local labor markets and firm dynamics, on social indicators such as household income, social benefit applications, or voting patterns, and on environmental outcomes, including local pollution indicators. This stage would provide credible local treatment effects and shed light on the mechanisms underlying a just transition.
Finally, in the last stage of the project, we will conduct prospective “transition hazard” simulations. Combining the facility-level exposure mapping with the estimated local elasticities, the analysis would simulate localized transition shocks under different policy scenarios and quantify their expected economic, social, and environmental impacts. This would make it possible to identify transition-risk hotspots and assess the geographic concentration of exposure in a forward-looking manner.
References:
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Van der Ploeg, F., & Rezai, A. (2020). Stranded assets in the transition to a carbon-free economy. Annual review of resource economics, 12(1), 281-298.
- Mercure, J. F., Pollitt, H., Viñuales, J. E., Edwards, N. R., Holden, P. B., Chewpreecha, U., ... & Knobloch, F. (2018). Macroeconomic impact of stranded fossil fuel assets. Nature climate change, 8(7), 588-593.
- Semieniuk, G., Holden, P. B., Mercure, J. F., Salas, P., Pollitt, H., Jobson, K., ... & Viñuales, J. E. (2022). Stranded fossil-fuel assets translate to major losses for investors in advanced economies. Nature Climate Change, 12(6), 532-538.
Project domain: sustainable finance, climate economics
Sponsor: Pladifes project (Louis Bachelier Institute)