Instrument choice and stranded assets in the transition to clean capital

By Julie Rozenberg, A. Vogt-Schilb, Stéphane Hallegatte. Journal of Environmental Economics and Management, 2017

141 citations recorded by the source corpus.

To mitigate climate change, some governments opt for instruments focused on investment, like performance standards or feebates, instead of carbon prices. We compare these policies in a Ramsey model with clean and polluting capital, irreversible investment and a climate constraint. Alternative instruments imply different transitions to the same balanced growth path. The optimal carbon price minimizes the discounted social cost of the transition to clean capital, but imposes immediate private costs that disproportionately affect the current owners of polluting capital, in particular in the form of stranded assets. A phased-in carbon price can avoid stranded assets but still result in a drop of income for the owners of polluting capital when it is implemented. Second-best standards or feebates on new investment lead to higher total costs but avoid stranded assets, preserve the revenues of vested interests, and smooth abatement costs over individuals and time. These results suggest a trade-off between political feasibility and cost-effectiveness of environmental policies.

Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/de2e4ef3a9134b4f6ee08b478e20e4f4614150f4

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In Economics and Econometrics

1. Marco Migliorelli
2. F. van der ploeg
3. Armon Rezai
4. E. Werf
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In Renewable Energy, Sustainability and the Environment

1. F. van der ploeg
2. Armon Rezai
3. E. Werf
4. Corrado Di Maria

Citations in the corpus

• Stranded Assets in the Transition to a Carbon-Free Economy (2020, background): “…on fossil fuel are also strongly exposed to forced write-offs of their carbon assets, if these investments are irreversible or costly to be used for another purpose (Guivarch and Hallegatte, 2011; Carbon Tracker Initiative, 2013; Koch and Bassen, 2013; Bertram et al., 2015; Rozenberg et al., 2019).”
• What Do We Mean by Sustainable Finance? Assessing Existing Frameworks and Policy Risks (2021, background): “Stranded assets can be defined as “assets that have suffered unanticipated or premature write-downs, devaluations, or conversions to liabilities” [44], and may become particularly relevant in the context of transition to a low-carbon economy [45,46].”