• Energy Research

PurposeThis paper aims to examine the complex issue of the social cost of carbon. The authors review the existing literature and the strengths and deficiencies of existing approaches. They introduce a simple methodology that estimates the amount of “legal looting” in the fossil fuel industry as an alternative approach to calculate an unpaid social cost of carbon. The “looting amount” can be defined as society’s failure to charge fossil fuel firms for the damage that their activities cause represents an implied subsidy.Design/methodology/approachThe methodology used in this paper combines decisions in the form of policymakers setting carbon taxes and rational investors investing in carbon emission markets.FindingsThe authors show that the unpaid social cost of carbon in the fossil fuel industry was US$12.7tn over 1995-2013, but may be as high as US$115.5tn.Originality/valueOver the same period, the sum of industry profits, emission trading scheme carbon permit and carbon tax revenue totalled US$7tn, indicating the industry would not be viable if it was made to pay for damages to society.

Environmental Finance is an emerging and rapidly growing interdisciplinary field of research, concerned with the financial implications of environmental change for industries and firms, and the need to transition to a sustainable economy. The field brings together research in finance and the natural sciences to develop financial and market solutions to some of humanity's most pressing concerns; namely, climate change and shifts in other Earth system processes. Firms need to adjust to these environmental changes, which offer many opportunities for wealth and growth. There are various historical examples of technological breakthroughs over the history of modern markets that have driven growth and wealth; such as, railways, electricity, automobiles, radio, microelectronics, personal computers, biotechnology, and the internet. The 2015 Paris Climate Agreement has given the green light to clean technology firms worldwide to start commercializing their patents. This will create the next technological breakthrough – a clean tech revolution that will drive growth and wealth in the same way as earlier breakthroughs. This article summarizes the state of this newly formed interdisciplinary field and sets out avenues for future research.

Abstract This study assesses the impact of climate change on changes in sugarcane output for Australia’s main sugarcane-growing regions, using a dataset for the years 1964–2012. We test for accelerated effects of climate change post-1995 (the midpoint in our testing period), as well as for possible non-linear impacts of climate change that are related to the geographical location of sugarcane plantations. Our findings show that increases in atmospheric carbon concentration have had a significant negative impact on sugarcane output after 1995, which contrasts with an earlier positive effect before 1995. Peak temperatures also had a larger impact on sugarcane output after 1995. For areas south of the tropical line and from 1995 onwards, an extra kilometer of distance from the tropical line corresponds to an increase of 1 million tons in sugarcane output growth. Our study tests for additional variables (irrigation, sugarcane diseases, fertilizer use, and dominant sugarcane variety planted) with results remaining similar. We conclude by discussing implications for policymakers and future research, in particular, the importance of factoring in regional differences and non-linear effects into adaptation planning across agricultural regions.

In October 2014, the Australian National University announced that it was divesting from seven fossil fuel-intensive companies. This announcement sparked an unprecedented response in the community, both positive and negative. We examine this decision, the divestment movement in general, the science behind the issue and strategic responses, both policy and organisational. We argue that a confluence between policy responses and organisational responses is beginning to emerge that will lead to greater action on climate change.

In this study, we examine the wealth effects associated with the announcement of the Australian Carbon Pricing Scheme (the “carbon tax”), made by the then Prime Minster Julia Gillard on 24 February 2011. Building on studies that use the event study method originally developed by Fama et al. (1969) and Ball and Brown (1968), we propose a novel approach to analyzing announcements with unresolved uncertainty. With this approach, we separate out the news effect and the value effect associated with the announcement of the Australian Carbon Pricing Scheme. Our findings show that the average news effect associated with the announcement is 1.11% (A$254 million dollars), indicating that the market was favorably disposed towards the news that the government was taking action on climate change. The average value effect was −4.46% (−A$1.12 billion dollars), indicating that the scheme destroyed significant value for existing firms. The announcement of the Australian Carbon Pricing Scheme was more value-destructive for carbon-intensive firms (−6.97%) than for the other firms (−3.67%). The method presented in this study can be applied to any policy announcements with unresolved uncertainty.

Abstract This paper investigates the driving factors behind the transition to a low carbon economy. Here, we offer a two-part analysis: First, we examine the factors leading to the current level of cleantech development. To do so, we examine the impact of country-level economic variables (real GDP, market return, and turnover) and country-level institutional variables on patent intensity. Results from this analysis show that cleantech patenting activity is fostered by a supportive institutional environment that promotes innovation and low-carbon development through carbon pricing policies, country-level public R&D expenditure and human capital. Second, we extend the notion of ‘path creation’ to map out different pathways for cleantech development on a country-level within a real options framework, and offer a corresponding valuation of cleantech patents. Our estimates of total wealth creation through the development of cleantech patents by 2050 range from US$10.16 to US$15.49 trillion dollars (13%–20% of the world GDP in 2017) with investment growth from US$2.93 to US$3.71 trillion (3.7%–4.7% of the world GDP in 2017). The results from our analysis suggest that market forces will drive the transition to a cleantech economy.