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GTAP Resource #6206

"Scenarios for Assessing Climate-related Financial Risk"
by Chen, Y.-H. Henry, Erik Landry and John Reilly

Climate change mitigation efforts, which require the transition away from carbon-intensive activities toward those with much smaller carbon footprints, pose risks for owners of fossil fuel assets and those who engage in greenhouse gas-emitting activities. For instance, fossil fuel extraction may be significantly scaled-back, and coal-power plants may be idled or even phased out prematurely, thus becoming stranded assets for the shareholders. Using a global general equilibrium model with detailed energy sector and capital stock structure, we estimate the corresponding stranded assets under various emissions mitigation scenarios. Our findings reveal that relative to a no policy scenario, at the global level, the net present value of unrealized fossil fuel output through 2040 is between 14.7 to 16.9 trillion US dollars, and that of stranded assets in coal power generation is between 1.0 to 1.4 trillion US dollars, depending on policy scenarios. The analytical framework presented in our study complements existing research, in which macroeconomic variables required for estimating the stranded assets are often derived from models with simplified assumptions on settings related to the evaluation. While the research scope is economy-wide, our approach can be used in further analysis to identify climate-related transition risk exposure of individual financial institutions.

Resource Details (Export Citation) GTAP Keywords
Category: 2021 Conference Paper
Status: Not published
By/In: Presented during the 24th Annual Conference on Global Economic Analysis (Virtual Conference)
Date: 2021
Created: Chen, Y. (4/4/2021)
Updated: Chen, Y. (5/1/2021)
Visits: 33
- Dynamic modeling
- Climate change policy

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