IDEAS home Printed from https://ideas.repec.org/p/hhs/lunewp/2021_018.html
   My bibliography  Save this paper

A Scenario Analysis of the Potential Effects of Decarbonization on the Profitability of the Energy-Intensive and Natural-Resource-Based Industries

Author

Listed:

Abstract

The decarbonization of the energy-intensive and natural-resourced-based industries is associated with large economic costs. In this paper, I explore how decarbonization may affect the profitability and market value of these industries and their ability to attract capital to fund their decarbonization. I also discuss the possibility of compensating for the investment costs through higher prices and enhanced productivity. I answer these questions using scenario analysis with a focus on the industries in the European Union and the United States. I find that the effects on profitability are likely to be modest despite relatively high investment costs.

Suggested Citation

  • Andersson, Fredrik N. G., 2021. "A Scenario Analysis of the Potential Effects of Decarbonization on the Profitability of the Energy-Intensive and Natural-Resource-Based Industries," Working Papers 2021:18, Lund University, Department of Economics.
    • Handle: RePEc:hhs:lunewp:2021_018
    as

    Download full text from publisher

    File URL: https://lucris.lub.lu.se/ws/portalfiles/portal/177122819/WP21_18
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Patrick Bolton & Frédéric Samama, 2013. "Loyalty-Shares: Rewarding Long-term Investors," Journal of Applied Corporate Finance, Morgan Stanley, vol. 25(3), pages 86-97, September.
    2. Christian Traeger, 2014. "Why uncertainty matters: discounting under intertemporal risk aversion and ambiguity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 56(3), pages 627-664, August.
    3. Dani Rodrik, 2014. "Green industrial policy," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 30(3), pages 469-491.
    4. Daniel R. Cooper & Nicole A. Ryan & Kyle Syndergaard & Yongxian Zhu, 2020. "The potential for material circularity and independence in the U.S. steel sector," Journal of Industrial Ecology, Yale University, vol. 24(4), pages 748-762, August.
    5. Wesseling, J.H. & Lechtenböhmer, S. & Åhman, M. & Nilsson, L.J. & Worrell, E. & Coenen, L., 2017. "The transition of energy intensive processing industries towards deep decarbonization: Characteristics and implications for future research," Renewable and Sustainable Energy Reviews, Elsevier, vol. 79(C), pages 1303-1313.
    6. Christian Gollier & James K. Hammitt, 2014. "The Long-Run Discount Rate Controversy," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 273-295, October.
    7. Dolf Gielen & Deger Saygin & Emanuele Taibi & Jean‐Pierre Birat, 2020. "Renewables‐based decarbonization and relocation of iron and steel making: A case study," Journal of Industrial Ecology, Yale University, vol. 24(5), pages 1113-1125, October.
    8. Winans, K. & Kendall, A. & Deng, H., 2017. "The history and current applications of the circular economy concept," Renewable and Sustainable Energy Reviews, Elsevier, vol. 68(P1), pages 825-833.
    9. Carlota Perez, 2002. "Technological Revolutions and Financial Capital," Books, Edward Elgar Publishing, number 2640.
    10. Lars J. Nilsson & Fredric Bauer & Max Åhman & Fredrik N. G. Andersson & Chris Bataille & Stephane de la Rue du Can & Karin Ericsson & Teis Hansen & Bengt Johansson & Stefan Lechtenböhmer & Mariësse va, 2021. "An industrial policy framework for transforming energy and emissions intensive industries towards zero emissions," Climate Policy, Taylor & Francis Journals, vol. 21(8), pages 1053-1065, September.
    11. Max Åhman & Lars J. Nilsson & Bengt Johansson, 2017. "Global climate policy and deep decarbonization of energy-intensive industries," Climate Policy, Taylor & Francis Journals, vol. 17(5), pages 634-649, July.
    12. Blyth, William & Bradley, Richard & Bunn, Derek & Clarke, Charlie & Wilson, Tom & Yang, Ming, 2007. "Investment risks under uncertain climate change policy," Energy Policy, Elsevier, vol. 35(11), pages 5766-5773, November.
    13. Dale W. Jorgenson & Mun S. Ho & Kevin J. Stiroh, 2005. "Productivity, Volume 3: Information Technology and the American Growth Resurgence," MIT Press Books, The MIT Press, edition 1, volume 3, number 0262101114, April.
    14. Stephen Hall & Timothy J Foxon & Ronan Bolton, 2017. "Investing in low-carbon transitions: energy finance as an adaptive market," Climate Policy, Taylor & Francis Journals, vol. 17(3), pages 280-298, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Oscar Svensson & Jamil Khan & Roger Hildingsson, 2020. "Studying Industrial Decarbonisation: Developing an Interdisciplinary Understanding of the Conditions for Transformation in Energy-Intensive Natural Resource-Based Industry," Sustainability, MDPI, vol. 12(5), pages 1-21, March.
    2. Venkataraman, Mahesh & Csereklyei, Zsuzsanna & Aisbett, Emma & Rahbari, Alireza & Jotzo, Frank & Lord, Michael & Pye, John, 2022. "Zero-carbon steel production: The opportunities and role for Australia," Energy Policy, Elsevier, vol. 163(C).
    3. Lopez, Gabriel & Galimova, Tansu & Fasihi, Mahdi & Bogdanov, Dmitrii & Breyer, Christian, 2023. "Towards defossilised steel: Supply chain options for a green European steel industry," Energy, Elsevier, vol. 273(C).
    4. Fagerberg, Jan, 2018. "Mobilizing innovation for sustainability transitions: A comment on transformative innovation policy," Research Policy, Elsevier, vol. 47(9), pages 1568-1576.
    5. Skoczkowski, Tadeusz & Verdolini, Elena & Bielecki, Sławomir & Kochański, Max & Korczak, Katarzyna & Węglarz, Arkadiusz, 2020. "Technology innovation system analysis of decarbonisation options in the EU steel industry," Energy, Elsevier, vol. 212(C).
    6. Vieira, Leticia Canal & Longo, Mariolina & Mura, Matteo, 2021. "Are the European manufacturing and energy sectors on track for achieving net-zero emissions in 2050? An empirical analysis," Energy Policy, Elsevier, vol. 156(C).
    7. Åsa Löfgren & Lassi Ahlvik & Inge den Bijgaart & Jessica Coria & Jūratė Jaraitė & Filip Johnsson & Johan Rootzén, 2024. "Green industrial policy for climate action in the basic materials industry," Climatic Change, Springer, vol. 177(9), pages 1-12, September.
    8. Gregor Semieniuk & Emanuele Campiglio & Jean‐Francois Mercure & Ulrich Volz & Neil R. Edwards, 2021. "Low‐carbon transition risks for finance," Wiley Interdisciplinary Reviews: Climate Change, John Wiley & Sons, vol. 12(1), January.
    9. Malico, Isabel & Nepomuceno Pereira, Ricardo & Gonçalves, Ana Cristina & Sousa, Adélia M.O., 2019. "Current status and future perspectives for energy production from solid biomass in the European industry," Renewable and Sustainable Energy Reviews, Elsevier, vol. 112(C), pages 960-977.
    10. Konstantinos Koasidis & Alexandros Nikas & Hera Neofytou & Anastasios Karamaneas & Ajay Gambhir & Jakob Wachsmuth & Haris Doukas, 2020. "The UK and German Low-Carbon Industry Transitions from a Sectoral Innovation and System Failures Perspective," Energies, MDPI, vol. 13(19), pages 1-34, September.
    11. Simon Quemin, 2016. "Intertemporal abatement decisions under ambiguity aversion in a cap and trade," Working Papers 1604, Chaire Economie du climat.
    12. Franziska Mais & Thomas Bauernhansl, 2024. "Decarbonization Drivers and Their Impact on Business Models in the Energy-Intensive Manufacturing Industry (EIMI)," Sustainability, MDPI, vol. 16(11), pages 1-24, June.
    13. Heck, Janine & Jahnke, Lars & Leker, Jens, 2024. "Early evidence of a transition towards sustainability-oriented decision-making in the chemical industry in Germany, Austria, and Switzerland: A choice-based conjoint analysis," Energy Policy, Elsevier, vol. 187(C).
    14. Ren, Lei & Zhou, Sheng & Peng, Tianduo & Ou, Xunmin, 2021. "A review of CO2 emissions reduction technologies and low-carbon development in the iron and steel industry focusing on China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 143(C).
    15. Howard, Peter H. & Derek, Sylvan, 2016. "The Wisdom of the Economic Crowd: Calibrating Integrated Assessment Models Using Consensus," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235639, Agricultural and Applied Economics Association.
    16. John A. Mathews, 2020. "Schumpeterian economic dynamics of greening: propagation of green eco-platforms," Journal of Evolutionary Economics, Springer, vol. 30(4), pages 929-948, September.
    17. Kriedel, Norbert, 2006. "Long waves of economic development and the diffusion of general-purpose technologies: The case of railway networks," HWWI Research Papers 1-1, Hamburg Institute of International Economics (HWWI).
    18. Diane Coyle & Jen‐Chung Mei, 2023. "Diagnosing the UK productivity slowdown: which sectors matter and why?," Economica, London School of Economics and Political Science, vol. 90(359), pages 813-850, July.
    19. Huang, Jijiang & Veksha, Andrei & Chan, Wei Ping & Giannis, Apostolos & Lisak, Grzegorz, 2022. "Chemical recycling of plastic waste for sustainable material management: A prospective review on catalysts and processes," Renewable and Sustainable Energy Reviews, Elsevier, vol. 154(C).
    20. Yang, Honghua & Ma, Linwei & Li, Zheng, 2023. "Tracing China's steel use from steel flows in the production system to steel footprints in the consumption system," Renewable and Sustainable Energy Reviews, Elsevier, vol. 172(C).

    More about this item

    Keywords

    decarbonization; energy-intensive; industry; profitability; investment;
    All these keywords.

    JEL classification:

    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • L70 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:lunewp:2021_018. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Iker Arregui Alegria (email available below). General contact details of provider: https://edirc.repec.org/data/delunse.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.