Misum meets elizabeth baldwin from oxford
On February 6 Misum is welcoming Associate Professor Elizabeth Baldwin from Oxford University to give the seminar "To build or not to build: Capital stocks and climate policy".
Room: Misum meeting room, floor 8, Holländargatan 32.
2018-02-06 at 16:00
2018-02-06 at 17:00
Welcome to a research seminar with Assoc. Prof. Elizabeth Baldwin of Oxford University, who is working on project assessing the impact of climate policies, like the Paris agreement, on the value and returns of investments in fossil fuel based power plants (stranded assets on the demand side). She will present a paper that was published as Grantham Research Institute working paper earlier this month, attached to this note, titled “To build or not to build? Capital stocks and climate policy”.
Abstract: To achieve the goals of the Paris Agreement, the use of fossil fuels must peak and then rapidly decline. Yet the world continues to make big investments into the construction of fossil fuel power plants, particularly coal plants. This research investigates the impact of climate change policy on capital invested in these ‘dirty’ assets. Once capital is invested in fossil fuel power plants it has no value unless used in production. Using a simplified model of dirty and clean sectors Baldwin et al. find that to avoid capital being stranded, investment into dirty plants must stop in 2020. They find that coal plants can be fully utilised for another 25 years until 2045 and still enable climate change targets to be met. After 2045, these assets will need to be underutilised, meaning that the net return on investment will reach zero. Rational policy should anticipate this, and stop investment of this kind early. The research finds that the investment into renewable energy and other ‘clean’ capital is warranted, and that subsidies should be in place so that this investment is at a higher level than would be stimulated by only a carbon price. Moreover, an early exit from fossil fuels should go hand in hand with a temporary increase in subsidies to renewables. As expected, a combination of carbon price and subsidies is the most cost-effective approach for meeting ambitious climate change mitigation targets. If only one policy is available, a carbon price performs better when the carbon targets are stringent, but a subsidy to renewables is a more cost-effective way to meet mild climate policy goals.
Bio: Elizabeth Baldwin is an Associate Professor at the Department of Economics, and the Roger Van Noorden Fellow in Economics at Hertford College, Oxford University. She is also an Affiliate member of the CESifo Network, a Research Associate at the Oxford Centre for the Analysis of Resource Rich Economies. Her research interests are the economics of climate change, and consumer choice between indivisible goods. The latter has applications to both auction theory and matching.
Feb 6, 16-17, in the Misum meeting room, floor 8, Holländargatan 32.
Open for everyone!