Letter | Published:

Divestment prevails over the green paradox when anticipating strong future climate policies

Nature Climate Changevolume 8pages130134 (2018) | Download Citation

Abstract

Fossil fuel market dynamics will have a significant impact on the effectiveness of climate policies1. Both fossil fuel owners and investors in fossil fuel infrastructure are sensitive to climate policies that threaten their natural resource endowments and production capacities2,3,4, which will consequently affect their near-term behaviour. Although weak in near-term policy commitments5,6, the Paris Agreement on climate7 signalled strong ambitions in climate change stabilization. Many studies emphasize that the 2 °C target can still be achieved even if strong climate policies are delayed until 20308,9,10. However, sudden implementation will have severe consequences for fossil fuel markets and beyond and these studies ignore the anticipation effects of owners and investors. Here we use two energy–economy models to study the collective influence of the two central but opposing anticipation arguments, the green paradox11 and the divestment effect12, which have, to date, been discussed only separately. For a wide range of future climate policies, we find that anticipation effects, on balance, reduce CO2 emissions during the implementation lag. This is because of strong divestment in coal power plants starting ten years ahead of policy implementation. The green paradox effect is identified, but is small under reasonable assumptions.

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Acknowledgements

The authors thank O. Edenhofer, G. Klepper, K. Pittel and R. van der Ploeg for fruitful discussions. N.B. and J.H. were supported by funding from the German Federal Ministry of Education and Research (BMBF) in the Call `Economics of Climate Change' (funding code 01LA11020B, Green Paradox). The research of C.M. and P.E. forms part of the programme of the UK Energy Research Centre and was supported by the UK Research Councils under Natural Environment Research Council award NE/G007748/1.

Author information

Affiliations

  1. Potsdam Institute for Climate Impact Research, Potsdam, Germany

    • Nico Bauer
    •  & Jérôme Hilaire
  2. University College London, Institute for Sustainable Resources, London, UK

    • Christophe McGlade
    •  & Paul Ekins
  3. Mercator Institute on Global Commons and Climate Change, Berlin, Germany

    • Jérôme Hilaire

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Contributions

N.B. and C.M. contributed equally to this research. N.B., C.M. and J.H. set up the research design. J.H. provided data for REMIND and C.M. provided data for TIAM-UCL. N.B. analysed data. N.B. and C.M. wrote the draft of the paper. J.H. and P.E. commented on the draft.

Competing financial interests

The authors declare no competing financial interests.

Corresponding author

Correspondence to Nico Bauer.

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    Supplementary Notes 1–6, Supplementary References, Supplementary Figures 1–18 and Supplementary Table 1–2

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DOI

https://doi.org/10.1038/s41558-017-0053-1