INET Post-doc/Researcher Talks: Alex Pfeiffer "The Lock-in Effect of Stranded Carbon Assets"

Past Event

05 March 2015, 4:00pm - 5:00pm

INET Oxford Lecture Theatre
Eagle House, Walton Well Road, Oxford, OX2 6ED

This talk is run by The Institute for New Economic Thinking at the Oxford Martin School

Speaker: Alex Pfeiffer

The latest IPCC assessment report confirms that the climate is changing, mainly due to anthropogenic emissions of GHG. The impacts will be unforeseeable but significant. In November 2014, the US and China signed an agreement seeking to limit their emissions, including ambitious targets for the share of renewable energies. In other countries around the world, policies have also been put in place to reduce greenhouse emissions and the share of fossil fuels. At the same time, investors everywhere are still investing in carbon- heavy assets such as coal-fired power, coal reserves, unconventional oil, etc. Why? Investors are aware of climate science and understand the constraints. Various hypotheses are plausible. One is that investors are locked-in to carbon-heavy investments because of existing ‘dirty’ capital stock. The potential loss if this capital becomes stranded can lead an economy onto a carbon-heavy growth path. In my first paper I will propose a theoretical multi-equilibrium model in which an increasing share of renewables in the electricity market can lead to a tipping point from which fossil fuel assets loose value via a self-enforcing feedback loop and become stranded. In this paper I will also test the outcome of such a model for different policy scenarios (i.e. research subsidies for clean technologies and carbon taxes). In my second paper I will test the findings and implications from this model empirically in a number of electricity markets. In my third paper I will qualitatively analyse the investments in 23 new coal-fired power plants in Europe to find out what the underlying set of assumptions and expectations for this investment decision was. Finally in my fourth paper I will empirically test to which extent a stranding of carbon-heavy assets could have an effect on the solvency of the companies who own these assets. The potential effect of a stranding of these assets, e.g. on the stability of the financial sector, has especially important implications for future policies. This has been supported by the Bank of England in a statement, released in December 2014 in which it confirms that it has instructed its staff to “ whether sizable losses from stranded coal, oil and gas reserves could hurt banks, investors, insurance companies and the rest of the financial system.”

Tea & cake available from 3pm, talk starts at 3.15pm for 30 minutes to then be followed by discussion.