Energy Shocks and the Climate Transition

Tools

Comerford, David and Spiganti, Alessandro (2025) Energy Shocks and the Climate Transition. Preprint / Working Paper. University of Strathclyde, Glasgow.

[thumbnail of Comerford-etal-UoS-2025-Energy-shocks-and-the-climate-transition]
Preview
 Text. Filename: Comerford-etal-UoS-2025-Energy-shocks-and-the-climate-transition.pdf
Final Published Version
License: Strathprints license 1.0
Download (830kB)| Preview

Abstract

We present a two-sector growth model in which a representative agent invests in fossil fuel-based energy and renewable energy. These differ in capital intensity and project duration: fossil fuel investments require lower upfront investment and have shorter duration, whereas renewables are more capital-intensive with longer-lived assets. We show that a negative economic shock (such as an energy supply shock or recession) leads to both cuts in total investment and to a shift in the composition of the remaining investment toward fossil fuel projects. This delays the clean energy transition, even if renewable energy is cost-effective on a levelised cost basis, implying a role for policies to sustain clean investment during recessions. We discuss how this mechanism can be amplified by higher interest rates, pro-cyclical climate policies, perceived risk, and financial frictions, and we relate our findings to recent empirical episodes (e.g. the 2022-23 energy crisis and post-2008 recession).

ORCID iDs

Comerford, David ORCID logoORCID: https://orcid.org/0000-0002-5541-736X and Spiganti, Alessandro;
CORE (COnnecting REpositories)