Financial risks to coal value chain from a cost-conscious shift to renewables in India
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Published version
Author(s)
Koberle, Alexandre C
Shrimali, Gireesh
Mittal, Shivika
Jindal, Abhinav
Donovan, Charles
Type
Journal Article
Abstract
A realignment of the financial sector is necessary to both enable the energy system transformation and manage financial risks implied by a transition to net-zero emissions. These include transition risks stemming from policies that limit or price greenhouse gas emissions. The financial sector has turned to scenarios developed by the research community for information on how transitions may unfold. Emerging methodologies linking transition scenarios to risk assessment are in their early stages but are key to enable financial institutions (FIs) to carry out the task at hand. Commercial FIs are exposed to transition risks primarily through their portfolio holdings and how assets therein may fare in a transition. Understanding this counterparty risk is key for development and interpretation of climate-financial scenarios. FIs will need to consider how the firms in a portfolio—the counterparties—will react to the transition and their capacity to navigate the changes involved. Here we apply a transparent and flexible framework to explore transition risks to corporate firms from low-carbon transition scenarios. We show that considering firms' strategic responses to the changes in their operating environment is an important determinant of the resulting transition risk estimates. We provide an illustrative case study of the coal value chain in India to demonstrate how the framework can be applied to both risk assessment and business strategy setting.
Date Issued
2022-12-01
Date Acceptance
2022-11-04
Citation
Environmental Research Letters, 2022, 17 (12)
ISSN
1748-9326
Publisher
IOP Publishing
Journal / Book Title
Environmental Research Letters
Volume
17
Issue
12
Copyright Statement
© 2022 The Author(s). Published by IOP Publishing Ltd. Original content from
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Subjects
climate finance
coal phaseout
energy system model
Environmental Sciences
Environmental Sciences & Ecology
India
Life Sciences & Biomedicine
Meteorology & Atmospheric Sciences
Physical Sciences
proforma cash flow model
Science & Technology
transition risk
transition scenarios
Publication Status
Published
Article Number
124002
Date Publish Online
2022-11-22