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Reframing Incentives for Climate Policy Action

Reframing 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 capital entail a profound reorganization of industry value chains, international trade and geopolitics. In this new study, PERI’s Gregor Semieniuk and coauthors show that a new configuration is emerging in which fossil fuel importers are better off decarbonizing, competitive fossil fuel exporters are better off flooding markets and uncompetitive fossil fuel producers suffer from their exposure to stranded assets and lack of investment in decarbonization technologies.

>> Read article published in Nature Energy journal

>> Read The Guardian press article 
>> Read UMass Amherst summary

Abstract

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. Here we present evidence confirming that the transformation of energy systems is well under way, and we explore the economic and strategic implications of the emerging energy geography. We 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.

Recent Research

  • Reframing Incentives for Climate Policy Action

  • Jean-Francois Mercure, Pablo Salas, Pim Vercoulen, Gregor Semieniuk, Aileen Lam, Hector Pollitt, Philip B. Holden, Negar Vakilifard, Unnada Chewpreecha, Neil Edwards, Jorge E. Vinuales

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  • November 2021

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