Fossil Resource Markets and Climate Policy: Stranded Assets, Expectations and the Political Economy of Climate Change (FoReSee)

Tasks

The FoReSee research project analyzes the interplay between policies to mitigate global climate change and the behavior of various participants in financial and fossil fuel markets. The main objective is to investigate how policies can be designed to overcome the inertia of the energy system and facilitate its transformation without excessive costs to society. FoReSee quantifies the redistribution of rents implied by various proposed climate policy instruments in sectors and countries vulnerable to asset stranding. It tries to understand private actors’ responses to current and expected, potentially uncertain, climate policies, and considers how climate policy design should take these responses into account. FoReSee puts emphasis on the interplay of actors, policies and information on fossil fuel and financial markets, while taking into account political economy and institutional constraints to effective climate change mitigation. In addition to traditional policy instruments, FoReSee investigates recently discussed supply- and demand-side climate policies and strives to suggest alternative instruments. The combination of empirical, numerical and applied theoretical modeling provides comprehensive guidance on appropriate and feasible policy design.

In the context of the project, the team at ifo will investigate

• how financial investors and markets respond to new information and signals on climate policy;
• how energy sector special interest groups and climate policy interact at the national and international levels;
• how expectations on climate change and climate policy affect prices of capital assets and investment decisions, and uses the findings on these effects for the design of policy instruments.

To ensure the applicability and relevance of its policy recommendations, FoReSee will engage in a multi-stakeholder dialogue with key players from the private sector (including firms in the energy sector and in finance/insurance), the public sector (including fossil-fuel producing countries and European policymakers) and the academic community. Transdisciplinary workshops and bilateral consultations integrate stakeholders’ incentives, strategies, and modeling input and, thus, assure for the co-design and co-production of knowledge. 

The results will be made available continuously over the project horizon in policy briefings, working papers, peer-reviewed academic journal articles, at international conferences and in integrative project workshops. The project will contribute to the education of junior researchers and actively engage with the national and international community of stakeholders and researchers in the economics of climate change.

FoReSee is one of the projects financed by the BMBF under the funding measure Economics of Climate Change II. The funding measure is intended to strengthen competencies in the field of climate change economics and thus provide well-founded, solution-oriented knowledge. In order to support this knowledge transfer and to intensify the exchange between researchers and practitioners, the funding measure is accompanied and supported by the project "Dialogue on the Economics of Climate Change" (https://www.klimadialog.de/).

Methods

Econometric methods, dynamic political economy models, integrated assessment modeling