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Semieniuk, Gregor and Campiglio, Emanuele and Mercure, Jean-Francois and Volz, Ulrich and Edwards, Neil (2020) 'Low-carbon transition risks for finance.' Wiley Interdisciplinary Reviews Climate Change. (Forthcoming)

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Abstract

The transition to a low‐carbon economy will entail a large‐scale structural change. Some industries will have to expand their relative economic weight, while other industries, especially those directly linked to fossil fuel production and consumption, will have to decline. Such a systemic shift may have major repercussions on the stability of financial systems, via abrupt asset revaluations, defaults on debt, and the creation of bubbles in rising industries. Studies on previous industrial transitions have shed light on the financial transition risks originating from rapidly rising “sunrise” industries. In contrast, a similar conceptual understanding of risks from declining “sunset” industries is currently lacking. We substantiate this claim with a critical review of the conceptual and historical literature, which also shows that most literature either examines structural change in the real economy, or risks to financial stability, but rarely both together. We contribute to filling this research gap by developing a consistent theoretical framework of the drivers, transmission channels, and impacts of the phase‐out of carbon‐intensive industries on the financial system and on the feedback from the financial system into the rest of the economy. We also review the state of play of policy aiming to protect the financial system from transition risks and spell out research implications.

Item Type: Journal Article
SOAS Departments & Centres: Departments and Subunits > Department of Economics
ISSN: 17577799
Copyright Statement: © 2020 The Authors. This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
DOI (Digital Object Identifier): https://doi.org/10.1002/wcc.678
Date Deposited: 17 Aug 2020 13:18
URI: https://eprints.soas.ac.uk/id/eprint/33379
Funders: Natural Environment Research Council

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