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Reframing incentives for climate policy action

Author

Listed:
  • J.-F. Mercure

    (University of Exeter
    University of Cambridge
    Cambridge Econometrics)

  • P. Salas

    (University of Cambridge
    University of Cambridge Institute for Sustainability Leadership (CISL))

  • P. Vercoulen

    (University of Exeter
    Cambridge Econometrics)

  • G. Semieniuk

    (University of Massachusetts Amherst
    SOAS University of London)

  • A. Lam

    (University of Cambridge
    University of Macao)

  • H. Pollitt

    (University of Cambridge
    Cambridge Econometrics)

  • P. B. Holden

    (The Open University)

  • N. Vakilifard

    (The Open University)

  • U. Chewpreecha

    (Cambridge Econometrics)

  • N. R. Edwards

    (University of Cambridge
    The Open University)

  • J. E. Vinuales

    (University of Cambridge)

Abstract

A key aim of climate policy is to progressively substitute renewables and energy efficiency for fossil fuel use. The associated rapid depreciation and replacement of fossil-fuel-related physical and natural capital entail a profound reorganization of industry value chains, international trade and geopolitics. Here we present evidence confirming that the transformation of energy systems is well under way, and we explore the economic and strategic implications of the emerging energy geography. We show specifically that, given the economic implications of the ongoing energy transformation, the framing of climate policy as economically detrimental to those pursuing it is a poor description of strategic incentives. Instead, a new climate policy incentives configuration emerges in which fossil fuel importers are better off decarbonizing, competitive fossil fuel exporters are better off flooding markets and uncompetitive fossil fuel producers—rather than benefitting from ‘free-riding’—suffer from their exposure to stranded assets and lack of investment in decarbonization technologies.

Suggested Citation

  • J.-F. Mercure & P. Salas & P. Vercoulen & G. Semieniuk & A. Lam & H. Pollitt & P. B. Holden & N. Vakilifard & U. Chewpreecha & N. R. Edwards & J. E. Vinuales, 2021. "Reframing incentives for climate policy action," Nature Energy, Nature, vol. 6(12), pages 1133-1143, December.
    • Handle: RePEc:nat:natene:v:6:y:2021:i:12:d:10.1038_s41560-021-00934-2
    DOI: 10.1038/s41560-021-00934-2
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    References listed on IDEAS

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    15. Wang, Kai-Hua & Kan, Jia-Min & Qiu, Lianhong & Xu, Shulin, 2023. "Climate policy uncertainty, oil price and agricultural commodity: From quantile and time perspective," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 256-272.
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    17. Liang, Chao & Umar, Muhammad & Ma, Feng & Huynh, Toan L.D., 2022. "Climate policy uncertainty and world renewable energy index volatility forecasting," Technological Forecasting and Social Change, Elsevier, vol. 182(C).
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    21. de Moura, Fernanda Senra & Barbrook-Johnson, Peter, 2022. "Using data-driven systems mapping to contextualise complexity economics insights," INET Oxford Working Papers 2022-27, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    22. Hoffart, Franziska M. & D'Orazio, Paola & Holz, Franziska & Kemfert, Claudia, 2024. "Exploring the interdependence of climate, finance, energy, and geopolitics: A conceptual framework for systemic risks amidst multiple crises," Applied Energy, Elsevier, vol. 361(C).
    23. Zhang, Shuo & Yu, Yadong & Kharrazi, Ali & Ma, Tieju, 2023. "How would sustainable transformations in the electricity sector of megacities impact employment levels? A case study of Beijing," Energy, Elsevier, vol. 270(C).
    24. Haoyue Liang & Fengqi You, 2023. "Reshoring silicon photovoltaics manufacturing contributes to decarbonization and climate change mitigation," Nature Communications, Nature, vol. 14(1), pages 1-19, December.
    25. Xu, Xin & An, Haizhong & Huang, Shupei & Jia, Nanfei & Qi, Yajie, 2024. "Measurement of daily climate physical risks and climate transition risks faced by China's energy sector stocks," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 625-640.

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