A Run on Fossil Fuel? Climate Change and Transition Risk

76 Pages Posted: 6 Feb 2023 Last revised: 28 Sep 2023

See all articles by Michael Barnett

Michael Barnett

Arizona State University (ASU) - Finance Department

Date Written: September 18, 2023

Abstract

I study the dynamic implications of climate transition risk on macroeconomic outcomes
and asset prices. Using a general equilibrium model, I show that the anticipation
of a climate transition shock, which will restrict future fossil fuel use and is amplified by
intensifying climate change, can produce a “run” effect where fossil fuel use accelerates
and fossil-fuel-related firm and spot prices are driven down. I use a novel empirical
measure of climate-transition-related events to show that shifts in transition risk likelihood
lead to dynamic and persistent empirical outcomes that are consistent with model
predictions associated with a “run on fossil fuel.”

Keywords: Climate Change, Transition Risk, Production-Based Asset Pricing

JEL Classification: G12, Q54, Q58

Suggested Citation

Barnett, Michael, A Run on Fossil Fuel? Climate Change and Transition Risk (September 18, 2023). Available at SSRN: https://ssrn.com/abstract=4346525 or http://dx.doi.org/10.2139/ssrn.4346525

Michael Barnett (Contact Author)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

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