Delayed and disorderly energy transitions will threaten economic and financial stability whilst also increasing the economic risks from climate change, according to a new study from the University of Surrey. Conversely, transitions that are started sooner are likely to be more orderly and economically beneficial.
The paper, published in Ecological Economics, simulates different energy transition scenarios and finds that earlier transitions are more economically beneficial than delayed, rapid shifts. By analysing the interactions between industries, investment patterns, and financial markets, the researchers show that disorderly transitions—where changes happen too quickly—can lead to economic instability and financial risks.
Dr Andrew Jackson, Senior Research Fellow at the Centre for the Understanding of Sustainable Prosperity and lead author of the study at the University of Surrey said:
“Transitioning to a low-carbon economy is critical. Our work shows how delayed and disorderly transitions could ultimately lead to a combination of increased inflation, higher interest rates, economic stagnation and financial instability. Avoiding these transition risks, as well as the physical risks from climate change, requires that governments take concerted action now’ and do not delay action on the transition any further.”
The research also suggests that targeted investments in green technologies, a robust financial framework to support these investments, and a clear and credible transition pathway can enable a smoother transition while safeguarding economic stability.
Dr Jackson continued:
“By prioritising an orderly transition that is well signposted, governments can mitigate the risks associated with delayed and disorderly transitions. We need a re-evaluation of current transition strategies to advocate for an approach that considers the economic and financial costs from delaying the transition as well as the upfront costs of the transition itself. Only by taking a holistic view of all these costs can we pave the way for a sustainable future without jeopardising economic and financial stability.”
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