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Cambridge Centre for Environment, Energy and Natural Resource Governance

In a new study published today in Nature Energy, C-EENRG fellows and co-authors call for reframing of incentives for climate policy action.

A key aim of climate policy is to progressively substitute renewables and energy efficiency for fossil fuel use. The associated rapid depreciation and replacement of fossil-fuel-related physical and natural capital entail a profound reorganization of industry value chains, international trade and geopolitics. In the paper, authors present evidence confirming that the transformation of energy systems is well under way, and explore the economic and strategic implications of the emerging energy geography. Authors show specifically that, given the economic implications of the ongoing energy transformation, the framing of climate policy as economically detrimental to those pursuing it is a poor description of strategic incentives. Instead, a new climate policy incentives configuration emerges in which fossil fuel importers are better off decarbonizing, competitive fossil fuel exporters are better off flooding markets and uncompetitive fossil fuel producers—rather than benefitting from ‘free-riding’—suffer from their exposure to stranded assets and lack of investment in decarbonization technologies.

This study is also the subject of The Guardian article 'Half world’s fossil fuel assets could become worthless by 2036 in net zero transition', complete with detailed interactive visualisations of impact of energy transition on fossil fuels assets and GDP for 61 countries and regions.

The study is co-authored by C-EENRG Fellows Jean-Francois MercurePablo SalasAileen LamHector PollittNeil Edwards and Jorge Vinuales, together with Pim Vercoulen; Gregor Semieniuk; Phil Holden; Negar Vakilifard; and Unnada Chewpreecha.

Read the full paper: Mercure, J.-F., Salas, P., Vercoulen, P., Semieniuk, G., Lam, A., Pollitt, H., Holden, P. B., Vakilifard, N., Chewpreecha, U., Edwards, N. R., Vinuales, J. E. (2021). Reframing incentives for climate policy action. Nature Energy.

Read The Guardian article: Half world’s fossil fuel assets could become worthless by 2036 in net zero transition.