Abstract
This dissertation presents a stock-flow consistent (SFC) model with an integrated input-output (IO) model for the study of the economic mechanisms by which capital assets might be stranded in the fossil fuel extraction and energy generation sectors. It assesses the major macroeconomic and financial implications of both capital asset stranding in these sectors and different transitions to a low carbon economy. The model is that of a pure credit economy that consists of three firm sectors, two household sectors and a banking sector. The three firm sectors are a fossil fuel energy sector (the ‘brown’ sector), a renewable energy sector (the ‘green’ sector), and a firm sector that produces non-energy goods (the ‘other’ sector). The two household sectors are an ‘ethical’ household sector and a ‘normal’ household sector. The model is used to investigate a number of claims from the stranded assets literature regarding the effects of different types of transitions to a low carbon economy (slow, fast, anticipated and unanticipated) and different changes in market conditions (due to changes in policy, financing conditions, technology or social norms). The results of the transition simulations support a number of the arguments made in the stranded assets literature, namely that faster transitions and unanticipated transitions are likely to strand more assets and have more disruptive effects on financial markets than slower transitions and anticipated transitions. The results of the market conditions simulations suggest that changes in market conditions that affect the real side of the economy are likely to lead to larger effects on demand and asset stranding than changes in market conditions that primarily affect firms’ borrowing costs. In addition, these simulations suggest that changes in market conditions are unlikely to have a large effect on the demand for different types of energy (and therefore on stranding) unless renewable energy becomes a close substitute for fossil fuel energy.