Transition to a Low Carbon Economy: The financial impact
Source: Climate Policy Initiative (via Eldis)
A major concern regarding a transition to a low-carbon economy is the impact that it could have on the global financial system. Would the scale of investment required consume financial resources and crowd out investments elsewhere in the economy? Would the impact that the transition would have on the value of existing investments — that is, the assets it would strand — reduce the capacity of investors and governments to invest?
This paper assesses the impact of a potential transition, looking not just at the investment required and the impact of a transition on the value of existing assets, but also looking more broadly at other factors that could affect the financial capacity of the global financial system, including operating expenses, risk, and the lifespan of investments. A savings in operating costs, for instance, could provide investors additional cash that could then be invested back into the economy. Lower risk frees up reserves and enables investment in further growth. And longer asset life means that investments need not be replaced as often, freeing cash for investment that would otherwise be needed for asset replacement.