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

A timely low-carbon transition will require a significant decline in fossil fuel production and consumption.This in turn exposes the rest of economic sectors to the risk of reduced usability of physical capital stocksvia international production network linkages. We propose and apply a simple measure to assess the extentto which fossil shocks might trigger underutilisation of capital stocks across countries and productive sectors(‘stranding multipliers’). Our results highlight the relevance of supply-side transition risks. First, among allproductive activities, the global fossil sector exhibits the highest stranding multiplier on the rest of theeconomic system. Second, some of the most exposed sectors are downstream activities, mainly affected bysecond-round effects. Third, we rank countries according to their external stranding potential, finding France,Australia and Slovakia at the top, and the USA, Italy and China at its bottom. Finally, we rank countriesaccording to their exposure to stranding risk and analyse more in depth the origins and transmission channelsof the stranding links affecting some of the most exposed countries (USA, China and Germany).