Instrument Choice and Stranded Assets in the Transition to Clean Capital

Rozenberg, Julie; Vogt-Schilb, Adrien; Hallegatte, Stéphane

doi:10.18235/0000643

Cited by 33 publications

(39 citation statements)

References 22 publications

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“…Some have also suggested spreading awareness about the risk of stranded assets and ‘change the culture’ of agents in the financial industry so that they consider it part of their due diligence to beware of potential stranded assets . A radical policy option is to simply forbid the construction of assets that are deemed likely to be stranded by emission reduction policies, for instance, enacting moratoriums on new fossil fuel power plants, or new fossil fuel fields …”

Section: Designing Effective and Politically Acceptable Policies To Ementioning

confidence: 99%

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Climate policies and nationally determined contributions: reconciling the needed ambition with the political economy

Vogt-Schilb

Hallegatte

2017

WIREs Energy & Environment

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte.

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Section: Designing Effective and Politically Acceptable Policies To Ementioning

confidence: 99%

“…Another approach is to select policy instruments that minimize abrupt disruption, such as performance or energy efficiency standards and feebates schemes that redirect investment toward zero‐carbon capital without affecting directly those responsible for today's emissions …”

Section: Introductionmentioning

confidence: 99%

Climate policies and nationally determined contributions: reconciling the needed ambition with the political economy

Vogt-Schilb

Hallegatte

2017

WIREs Energy & Environment

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“…23 In a recent working paper, Rozenberg et al (2017) propose a model to analyse instantaneous reductions and abatement investment in the same framework (but their model does not allow to compare investment in different sectors).…”

Section: Appendix a Optimal Accumulation Of Abatement Capitalmentioning

confidence: 99%

When Starting with the Most Expensive Option Makes Sense: Optimal Timing, Cost and Sectoral Allocation of Abatement Investment

Vogt-Shilb

Meunier

Hallegate

2018

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This paper finds that it is optimal to start a long-term emission-reduction strategy with significant short-term abatement investment, even if the optimal carbon price starts low and grows progressively over time. Moreover, optimal marginal abatement investment costs differ across sectors of the economy. It may be preferable to spend $25 to avoid the marginal ton of carbon in a sector where abatement capital is expensive, such as public transportation, or in a sector with large abatement potential, such as the power sector, than $15 for the marginal ton in a sector with lower cost or lower abatement potential. The reason, distinct from learning spillovers, is that reducing greenhouse gas emissions requires investment in long-lived abatement capital such as clean power plants or public transport infrastructure. The value of abatement investment comes from avoided emissions, but also from the value of abatement capital in the future. The optimal levelized cost of conserved carbon can thus be higher than the optimal carbon price. It is higher in sectors with higher investment needs: those where abatement capital is more expensive or sectors with larger abatement potential. We compare our approach to the traditional abatement-cost-curve model and discuss implications for policy design. HighlightsThe same carbon price translates into different abatement investment costs in different sectors Sectors with higher emissions and more expensive abatement capital should invest more dollars per abated ton Abatement cost curves cannot be used to model abatement options that require investment in low-carbon capital * Corresponding author: Adrien Vogt-Schilb, avogtschilb@iadb.org, +1 202 623 2564Email addresses: avogtschilb@iadb.org (Adrien Vogt-Schilb), guy.meunier@ivry.inra.fr (Guy Meunier), shallegatte@worldbank.org (Stéphane Hallegatte) Preprint submitted to ElsevierNovember 10, 2017Keywords: climate change mitigation, transition to clean capital, path dependence, social cost of carbon, marginal abatement cost, timing JEL classification: Q54, Q52, Q58National governments committed to stabilize climate change to mitigate subsequent damages (G7, 2015; UNFCCC, 2016). This will require transitioning from an economy based on polluting capital, such as inefficient buildings and polluting cars, to an economy based on clean capital, such as retrofitted buildings or electric vehicles. A critical question for public policy is to determine the optimal cost and timing of such abatement investment. Is action as urgent as frequently advocated? A second important issue is the optimal allocation of abatement. There are many options to reduce greenhouse gas (GHG) emissions, from renewable power plants to improved building insulation and more efficient cars. Each of these options has a cost, and would reduce emissions by a certain amount. Should mitigation start with the least expensive options and progressively clean the economy by ascending cost order?To shed light on these questions, we study the optimal timing, cost, and sectoral...

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“…Indeed, it does not create an incentive to reduce emissions from existing assets, and it may have undesired side-effects, such as a lengthening of the economic lifetime of polluting assets (Anderson et al, 2011). But it has the advantage of triggering a transition toward a lowcarbon path without hurting owners of existing man-made capital, hence reducing resistance (Rozenberg et al, 2017). It may thus be more socially acceptable and make it easier to build coalitions of economic and political actors supporting climate action.…”

Section: Minimizing Disruptions and Increasing Acceptabilitymentioning

confidence: 99%

“…Another approach is to select policy instruments that minimize abrupt disruption, such as performance or energy efficient standards and feebates scheme that redirect investment toward zero-carbon capital ithout affe ti g di e tl those espo si le fo toda s e issio s (Rozenberg et al, 2017).…”

mentioning

confidence: 99%

Climate Policies and Nationally Determined Contributions: Reconciling the Needed Ambition with the Political Economy

Vogt-Schilb

Hallegatte

2017

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Countries have pledged to stabilize global warming at a 1.5 to 2°C increase. Either target requires reaching net zero emissions before the end of the century, which implies a major transformation of the economic system. This paper reviews the literature on how policymakers can design climate policies and their Nationally Determined Contributions (NDCs) to reach zero-net emissions before the end of the century in a socially and politically-acceptable manner. To get the ambition right, policymakers can use sectoral roadmaps with targets and indicators that track progress towards zero emissions (e.g. regarding renewable power or reforestation). Indeed, monitoring economy-wide emissions reductions alone would not ensure that short-term action contributes meaningfully to the long-term decarbonization goal. To get the political economy right, climate policies can be designed so that they contribute to nonclimate objectives and create coalitions of supporters. For instance, revenues from carbon taxes can fund social assistance and infrastructure investment, while reducing tax evasion and informality. To minimize social and economic disruptions and avoid stranded assets, policymakers can start with a low carbon price level and use complementary policies. Designed at the sector level, complementary policies such as performance standards or feebates for cars, building norms, or moratoriums on new coal power plants can be negotiated in partnership with local stakeholders and trigger a transition to zero carbon without creating disruptive stranded assets.

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Instrument Choice and Stranded Assets in the Transition to Clean Capital

Cited by 33 publications

References 22 publications

Climate policies and nationally determined contributions: reconciling the needed ambition with the political economy

Climate policies and nationally determined contributions: reconciling the needed ambition with the political economy

When Starting with the Most Expensive Option Makes Sense: Optimal Timing, Cost and Sectoral Allocation of Abatement Investment

Climate Policies and Nationally Determined Contributions: Reconciling the Needed Ambition with the Political Economy

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