Households on the Front Line of the Energy Transition

Sep. 23, 2025

Speaking at the Swedish House of Finance’s annual conference with CEPR, experts urged policymakers to balance affordability, air quality, and climate goals. They warned that households face mounting risks from stranded assets and higher costs.

Cheap Power vs. Clean Air and Carbon

“Climate change has arrived,” said Michael Greenstone, a Professor of Economics at the University of Chicago. But he cautioned that it is “a mistake to focus on it in isolation.”

Instead, he described a “global energy challenge” that requires balancing three priorities: inexpensive and reliable energy, cleaner air and reduced CO2.

“Humans were not put on the planet to minimize climate change,” Greenstone said. “They were put on the planet to maximize their well-being.”

He noted that fossil fuels remain dominant because they are cheap and reliable, while renewables must “pay for their intermittency.”

The harms are unevenly spread, he added, with air pollution cutting life expectancy in emerging economies and warming hitting poorer regions hardest.

“Blended Finance” Seeks to Unlock Capital

Caroline Flammer, professor at Columbia University, argued that blended finance can help channel private money into nature and climate projects.

“There are tons of capital out there,” she said. “But it just doesn’t flow in that direction, and it especially doesn’t flow into the global South, where we need the capital the most.”

She said investors can generate returns by “bundling a public good with a private good.” Examples include forests that attract tourism, mangroves that protect real estate, or shade-grown coffee that improves quality and price.

“At first it seems challenging to get a financial return out of protecting nature,” she said. “But it is possible.”

Flammer however added that blended finance is not a panacea:

“There is no  silver bullet here,” she said. “We need more rigorous studies to understand how much concessionality is really needed.”

Households Risk Stranded Assets

Marcus Svedberg, Chief Economist at Folksam, warned that both property and cars could lose value quickly.

“Spending their mortgage and houses that are not possible to insure or use as collateral, they may become stranded,” he said. “This is, of course, an enormous problem for the households, but it will also be a problem for the banks or society at large as financial stability.”

“More mitigation finance and more adaptation finance is needed,” Svedberg said. “By starting at the other end, by showing what the risks are to individual households, it may actually become easier to explain why this is important.”

Transition Costs Will Fall on Consumers and Taxpayers

Gabriel Lundström, Head of Sustainability at Skandia, said both physical and transition risks will be costly.

“No matter what path we take, it will lead to higher global risks in the global economies,” he said. “These risks will translate into costs for someone.”

He pointed to Europe’s dependence on imported energy:

“We have a rather fragile energy system,” Lundström said. “We have to make our energy systems more resilient, both from a climate perspective and from a resilience perspective for Europe’s independence going forward. But that won’t be for free either. Someone has to pay the price tag.”

Banks Move to Climate-Risk Pricing

Åsa Knudsen Sterte, Head of Climate and Sustainable Finance at SEB, said climate risk is still not integrated into household lending.

“Households do not know about the climate risk today,” she said. “We as a bank have 30-year commitments, but we only look at the ability to pay back the loan. We don’t look at the underlying collateral.”

She said that is now changing.:

“The European Banking Authority has published guidelines on how to integrate ESG risks,” Knudsen Sterte said. “This will require banks to integrate both physical risks and transition risks into risk reports and lending decisions. And when households can compare information, they will start to see which homes are associated with climate risks.”

Balancing Act

Speakers agreed that the transition will be judged not only by tonnes of CO2 avoided but also by whether it protects households and preserves living standards.

“Every country around the world has to find its way to balance between these three goals,” Greenstone said.