A new study from the University of Surrey highlights that delayed and disorderly energy transitions threaten economic and financial stability while amplifying the economic risks associated with climate change. In contrast, earlier transitions will likely be more orderly and have positive economic outcomes.

Published in Ecological Economics, the study explores various energy transition scenarios through simulation, demonstrating that initiating earlier transitions can yield more significant economic benefits than delayed, rapid changes. By examining the interplay among industries, investment patterns, and financial markets, the researchers illustrate that disorderly transitions—characterised by overly rapid changes—can precipitate economic instability and heightened financial risks.

Dr Andrew Jackson, a Senior Research Fellow at the Centre for the Understanding of Sustainable Prosperity and the study’s lead author at the University of Surrey, stressed the importance of moving towards a low-carbon economy. He pointed out that delayed and chaotic transitions could lead to adverse outcomes, including increased inflation, higher interest rates, economic stagnation, and financial instability. He underscored the need for governments to act decisively and without delay to mitigate these transition risks and the direct physical risks from climate change.

The study further suggests that strategic investments in green technologies, supported by a robust financial framework and a clear, credible transition pathway, could facilitate a smoother changeover while ensuring economic stability.

Dr Jackson elaborated on the need for governments to prioritise a communicated orderly transition, thus mitigating the risks linked with delayed and disorganised transitions. He called for re-evaluating current transition strategies to account for the economic and financial costs of delaying action and the initial costs of the transition itself. He emphasised that a comprehensive consideration of all these costs is essential to pave the way for a sustainable future without compromising economic and financial stability.

More information: Andrew Jackson et al, Macroeconomic, sectoral and financial dynamics in energy transitions: A stock-flow consistent, input-output approach, Ecological Economics. DOI: 10.1016/j.ecolecon.2024.108507

Journal information: Ecological Economics Provided by University of Surrey