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Costs or benefits? Assessing the economy-wide effects of the electricity sector's low carbon transition – The role of capital costs, divergent risk perceptions and premiums

Bachner, Gabriel; Mayer, Jakob; Steininger, Karl


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    "description": "<p>To mitigate climate change, societies strive to transform the energy sector towards greenhouse gas emission<br>\nneutrality, a move which assessment studies often indicate incurs large macroeconomic costs. In this context the<br>\nweighted average costs of capital (WACC) are especially important, as renewables are highly capital intensive. In<br>\nparticular, investors&#39; perceptions and expectations of risks are fundamental determinants of WACC and thus<br>\nstrongly influence the macroeconomic outcome of transition analyses. For the case of Europe&#39;s electricity sector<br>\ntransition, we analyze this sensitivity by choosing different WACC settings, driven also by different policy settings<br>\nredirecting expectations. First, we find that when differentiating WACC across regions and technologies<br>\nmore accurately than usually done in the literature, immediate and substantial macroeconomic benefits from the<br>\ntransition emerge. We thereby reveal a systematic overestimation of low-carbon transition costs in the literature.<br>\nSecond, we find that when pricing-in increasing trust in renewables, these benefits get significantly larger,<br>\noutweighing possible negative macroeconomic effects from the risk of stranding of fossil-based assets. We also<br>\ndemonstrate that in developed regions such as Europe, de-risking renewables is an effective lever for reaching<br>\nclimate targets, which indicates the relevance of green macroprudential regulation.</p>", 
    "language": "eng", 
    "title": "Costs or benefits? Assessing the economy-wide effects of the electricity sector's low carbon transition \u2013 The role of capital costs, divergent risk perceptions and premiums", 
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    "keywords": [
      "Climate change mitigation; Electricity; Europe; Risk; Capital costs"
    ], 
    "publication_date": "2019-11-01", 
    "creators": [
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        "affiliation": "University of Graz", 
        "name": "Bachner, Gabriel"
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        "affiliation": "University of Graz", 
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