Capital stranding cascades: The impact of decarbonisation on productive asset utilisation – 9 May 2019

This article develops a novel methodological framework to investigate the exposure of economic systems to the risk of physical capital stranding. Combining Input-Output (IO) and network theory, we define measures to identify both the sectors likely to trigger relevant capital stranding cascades and those most exposed to capital stranding risk.

We show how, in a sample of ten European countries, mining is among the sectors with the highest external asset stranding multipliers. The sectors most affected by capital stranding triggered by decarbonisation include electricity and gas; coke and refined petroleum products; basic metals; and transportation. From these sectors, stranding would frequently cascade down to chemicals; metal products; motor vehicles water and waste services; wholesale and retail trade; and public administration. Finally, we provide an estimate for the lower-bound amount of productive assets at risk of transition-related stranding, which is in the range of 0.6-8.2\% of the overall capital stock for our sample of countries, mainly concentrated in the electricity and gas sector, manufacturing, and mining. These results confirm the systemic relevance of transition-related risks on European societies