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Capital stranding cascades: The impact of decarbonisation on productive asset utilisation

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  • Cahen-Fourot, Louison
  • Campiglio, Emanuele
  • Godin, Antoine
  • Kemp-Benedict, Eric
  • Trsek, Stefan

Abstract

The aim of this article is to assess the exposure of economic systems to the risk of physical capital stranding following a reduction of fossil fuel production and use. We calculate cross-sectoral and cross-country ‘marginal stranding multipliers’ for 43 regions, and study how supply-side capital stranding might propagate via international production networks. We show how the fossil industry has the potential of creating significant stranding cascades affecting downstream sectors and the economic system as a whole. We then focus on cross-country stranding impacts and rank countries according to their external stranding potential and to their exposure to external strandingrisk. Finally, we analyse more in depth the origins and transmission channels of the stranding links affecting the most exposed countries (US, China and Germany). Our results confirm the relevance of including multi-regional production networks and physical capital stranding into the ongoing effort to assess the macro-financial implications of a low-carbon transition.

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  • Cahen-Fourot, Louison & Campiglio, Emanuele & Godin, Antoine & Kemp-Benedict, Eric & Trsek, Stefan, 2021. "Capital stranding cascades: The impact of decarbonisation on productive asset utilisation," Ecological Economic Papers 37, WU Vienna University of Economics and Business.
    • Handle: RePEc:wiw:wus045:8007
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    More about this item

    Keywords

    low-carbon transition; asset stranding; production networks; capital stocks; fossilfuels; supply-side policies;
    All these keywords.

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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