Low-carbon transition, stranded assets, financial stability, and the role of central banks

This chapter reviews the discussion on the nexus between the low-carbon transition, stranding risk, financial instability, and the role of central banks. It provides an overview of stranding risk estimates of productive and financial asset and discusses the significance of these estimates. Although absolute amounts are important, stranding risks must be comprehended considering the total capital stock as well as the geographical distribution of losses and the nature of owners, e.g., states vs. private owners. The chapter then links the discussion on stranded assets to the role of central banks. It is argued that central banks have an important stabilizing role to play in enhancing states’ ability to tackle asset stranding and losses in fossil fuel revenues. Normative approaches to the role of central banks in the context of the ecological crisis are thus surveyed.