The transition to a low-carbon economy will entail a large-scale structural change. Some industries will have to expand their relative economic weight, while other industries, especially those directly linked to fossil fuel production and consumption, will have to decline. Such a systemic shift may have major repercussions on the stability of financial systems, via abrupt asset revaluations, defaults on debt, and the creation of bubbles in rising industries. Studies on previous industrial transitions have shed light on the financial transition risks originating from rapidly rising “sunrise” industries. In contrast, a similar conceptual understanding of risks from declining “sunset” industries is currently lacking. We substantiate this claim with a critical review of the conceptual and historical literature, which also shows that most literature either examines structural change in the real economy, or risks to financial stability, but rarely both together. We contribute to filling this research gap by developing a consistent theoretical framework of the drivers, transmission channels, and impacts of the phase-out of carbon-intensive industries on the financial system and on the feedback from the financial system into the rest of the economy. We also review the state of play of policy aiming to protect the financial system from transition risks and spell out research implications. This article is categorized under: Climate Economics > Economics and Climate Change.

Low-carbon transition risks for finance / Semieniuk G.; Campiglio E.; Mercure J.-F.; Volz U.; Edwards N.R.. - In: WILEY INTERDISCIPLINARY REVIEWS. CLIMATE CHANGE. - ISSN 1757-7780. - ELETTRONICO. - 12:1(2021), pp. e678.1-e678.24. [10.1002/wcc.678]

Low-carbon transition risks for finance

Campiglio E.;
2021

Abstract

The transition to a low-carbon economy will entail a large-scale structural change. Some industries will have to expand their relative economic weight, while other industries, especially those directly linked to fossil fuel production and consumption, will have to decline. Such a systemic shift may have major repercussions on the stability of financial systems, via abrupt asset revaluations, defaults on debt, and the creation of bubbles in rising industries. Studies on previous industrial transitions have shed light on the financial transition risks originating from rapidly rising “sunrise” industries. In contrast, a similar conceptual understanding of risks from declining “sunset” industries is currently lacking. We substantiate this claim with a critical review of the conceptual and historical literature, which also shows that most literature either examines structural change in the real economy, or risks to financial stability, but rarely both together. We contribute to filling this research gap by developing a consistent theoretical framework of the drivers, transmission channels, and impacts of the phase-out of carbon-intensive industries on the financial system and on the feedback from the financial system into the rest of the economy. We also review the state of play of policy aiming to protect the financial system from transition risks and spell out research implications. This article is categorized under: Climate Economics > Economics and Climate Change.
2021
Low-carbon transition risks for finance / Semieniuk G.; Campiglio E.; Mercure J.-F.; Volz U.; Edwards N.R.. - In: WILEY INTERDISCIPLINARY REVIEWS. CLIMATE CHANGE. - ISSN 1757-7780. - ELETTRONICO. - 12:1(2021), pp. e678.1-e678.24. [10.1002/wcc.678]
Semieniuk G.; Campiglio E.; Mercure J.-F.; Volz U.; Edwards N.R.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/773903
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