Capital Adjustment Costs and Nationally Determined Contributions - How to Avoid Double Transitions of Energy Capital? | Carolyn Fischer

Professor Fischer is a Lead Economist on the Sustainability and Infrastructure Team in the Development Research Group of the World Bank. Her research addresses topics of environmental policy instrument design at the intersection with technical change, trade, development, carbon leakage, and overlapping objectives.

Carolyn Fischer will present the paper ‘Capital Adjustment Costs and Nationally Determined Contributions – How to Avoid Double Transitions of Energy Capital?’.

Abstract

The cost and pace of energy transitions differ across countries, shaped by clean technology catch-up, existing energy capital stocks, and adjustment costs. We find for both advanced and developing economies that a composite of major clean technologies is about 40% less productive than dirty counterparts but projected to reach parity by 2030 and that clean and dirty energy capital each account for roughly 10% of the total stock. We calibrate a three-sector growth model for representative advanced and developing economies to study investment shifts from carbon-intensive to carbon-free energy under cumulative carbon budgets, net-zero targets, or both. In the central case, carbon budgets consistent with 1.5◦C entail modest welfare costs in both regions. Productivity convergence induces developing economies to expand clean investment immediately to smooth adjustment costs, preventing a buildup of dirty capital. Compared with net-zero targets, stricter carbon budgets yield faster phaseouts with fewer stranded assets. Comparing to stronger climate ambition, higher adjustment costs generate more pronounced transitional costs in both regions.

The Research Seminar Series is open to all LSE researchers. No pre-registration required to attend the seminars. If you wish to attend the seminars or want to be kept informed about upcoming seminars, please email Gri.Events@lse.ac.uk.