Capital stranding cascades: The impact of decarbonisation on productive asset utilisation | Dr. Emanuele Campiglio

Dr. Emanuele Campiglio, Assistant Professor – Vienna University of Economics and Business (WU), Visiting Fellow – London School of Economics and Political Science (LSE). Emanuele will be discussing his paper on Capital stranding cascades: The impact of decarbonisation on productive asset utilisation.

 Abstract

This article develops a novel methodological framework to investigate the exposure of economic systems to the risk of physical capital stranding. Combining Input-Output (IO) and network theory, we define measures to identify both the sectors likely to trigger relevant capital stranding cascades and those most exposed to capital stranding risk. We show how, in a sample of ten European countries, mining is among the sectors with the highest external asset stranding multipliers. We then focus on the transition away from fossil fuels, identifying the most relevant channels through which asset stranding would cascade from the mining sector to the rest of productive activities. Frequently affected sectors include electricity and gas; manufacturing (coke, refined petroleum products, basic metals, chemicals and others); water and waste services; trade; transportation; and public administration. Finally, we provide an estimate for the amount of productive assets at risk of stranding due to decarbonisation, which is in the range of 0.6-8.2% of the overall capital stock for our sample of countries, mainly concentrated in the electricity and gas sector, manufacturing and mining. These results confirm that capital stranding driven by a transition away from fossil fuels could have systemic effects on European societies.