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Moving to a low carbon economy

Hydrocarbon Engineering,

The CPI has released two reports, ‘Moving to a Low Carbon Economy: The Financial Impact of the Low Carbon Transition’ and Moving to a Low Carbon Economy: The Impact of Different Policy Pathways on Fossil Fuel Asset Values.’ The first report looks at the costs of low carbon electricity and low carbon transportation systems and compares them with current systems. The second looks at the risk of losses in the financial value of existing fossil fuel assets. A loss in assets value is critical as it constrains governments and businesses’ ability to borrow against them to finance growth and investment, including investment in a low carbon transition.

Report highlights

  • Governments, rather than private investors and corporations, face the majority of stranding risk.
  • Governments own 50 – 70% of global oil, gas and coal resources, as well as collect taxes and royalties on the portions they do not own.
  • Governments control much of the policy that could lead either to asset stranding or financial savings.
  • The right policies can maximise the financial benefits of a low carbon transition.
  • Transitioning to a low carbon electricity system would bring the global economy an estimated US$ 1.8 trillion in financial savings between 2015 and 2035.
  • Transition from oil to low carbon transport could increase global investment capacity by trillions or result in net costs, depending on policy choices.
  • Regions that import more oil than they produce stand to benefit most from together reducing their oil consumption in favour of low carbon alternatives regardless of whether oil producing countries choose to act.
  • Coal offers the largest emissions reductions for the least loss in financial value.
  • Transitioning away from coal is a cost effective path to a low carbon economy.
  • Reducing the cost of financing renewable energy plants can significantly lower the cost of transition across the world.
  • In the US and Europe, expanding and improving financing vehicles that can efficiently channel low cost institutional investment into low carbon energy infrastructure can reduce the cost of low carbon power by 20%.
  • In developing countries, long term, low cost debt can reduce the cost of low carbon power by 30%.
  • Innovation and demand focused policies are the best combination to limit loss of asset value.
  • Gas can be a bridge fuel for some regions until 2030.

Edited from executive summary by Claira Lloyd

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