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Who Bears the Brunt?


One common rationale against climate action is that the resulting fossil-fuel investment losses could affect the retirement or long-term savings of a vast number of people. However, research co-authored by an economist at the UMass Amherst Political Economy Research Institute (PERI) finds that the loss of fossil-fuel assets would have a minimal impact on the general populace.

In high-income countries, most losses would be borne by the most affluent individuals, for whom the loss makes up a small percentage of their total wealth. In contrast, the financial loss of lower-income individuals would be small in dollar terms and feasible for governments to compensate.

The paper, published in the journal Joule and co-authored by Gregor Semieniuk, research assistant professor at UMass Amherst; Lucas Chancel, associate professor of economics at Sciences Po in Paris; and four other co-authors, builds on Semieniuk’s earlier research, which estimated the total amount of assets that would be lost, or ‘stranded,’ if ambitious climate policies caused fossil-fuel production to quickly decline.

Semieniuk and Chancel find that, in the U.S., two-thirds of the financial losses from fossil-fuel assets would affect the top 10% of wealth holders, with half of that affecting the top 1%. Because the top 1% tend to have a diverse portfolio of investments, any losses from fossil-fuel assets would make up less than 1% of this group’s net wealth. When the researchers repeated this analysis for the U.K. and continental European countries, they found similar results.

In contrast, 3.5% of financial losses would affect the poorest half of Americans. Asset losses make up a larger proportion of wealth for this group. However, because their overall net wealth (assets minus liabilities) is significantly lower, researchers estimate that the entirety of these losses could be compensated for as little as $9 billion in Europe and $12 billion in the U.S.

“There’s this idea that it’s the general populace that should be opposed to climate policy that creates stranded assets because their pensions are at risk or their retirement savings or just their savings,” Semieniuk said. “It’s not untrue that some wealth is at risk, but in affluent countries, it’s not a reason for government inaction because it would be so cheap for governments to compensate that.”

Semieniuk and Chancel detail three different potential ways governments could raise this amount of money. For example, policymakers could impose a very modest carbon-emissions tax. In addition, they could renegotiate their current liabilities to energy companies and use the amount that they save. A modest tax on the wealthiest individuals could also raise enough money to compensate for the least affluent groups’ losses.

“Even though our results are simple, they were not present in research or public debates before,” Chancel said. “This work is one step forward in understanding the winners and losers from the point of view of the assets that might be at risk in this transition.”

The research was supported by the U.K. Natural Environment Research Council, the United Nations Development Programme, an EU Horizon grant, the Leverhulme Research Centre, and the Leverhulme Trust.