FEEM working papers "Note di lavoro" series
2010 .013

Investments and Financial Flows Induced by Climate Mitigation Policies


Authors: Andrea Bastianin, Alice Favero, Emanuele Massetti
Series: Climate Change and Sustainable Development
Editor: Carlo Carraro
Type: Journal
Keywords: Climate Change, Mitigation, Carbon Finance, Emission Trading, Energy Investments
JEL n.: Q01, Q43, Q54, O32, O11
JEL: Energy Economics
Pages: Volume 34, Supplement 1, Pages S15-S28
Date: 11/2012

Abstract

In this paper we use the hybrid integrated model WITCH to quantify and analyze the investments and financial flows stimulated by a climate policy to stabilize Greenhouse Gases concentrations at 550ppm CO2-eq at the end of the century. We focus on investments to decarbonize the power sector and on investments in knowledge creation. We examine the financial flows associated with the carbon market and the implications for the international trade of oil.
Criticalities in investment requirements will emerge when coal power plants with carbon capture and sequestration and nuclear power plants are deployed around 2020-2040, both in high and low income regions. Investments in energy related R&D increase sharply and might cause stress in the short term. However, the transition to a low-carbon world, although costly, appears to be manageable from a financial point of view. In particular, R&D financial needs can easily be accommodated using revenues from the carbon market, which is expected to eventually become more important than the oil market in terms of traded value.

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Suggested citation: Carlo Carraro, Alice Favero, Emanuele Massetti, “Investments and public finance in a green, low carbon, economy”, Energy Economics, Volume 34, Supplement 1, November 2012, Pages S15-S28, ISSN 0140-9883, http://dx.doi.org/10.1016/j.eneco.2012.08.036

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