A Run on Oil? Climate Policy and Stranded Assets Risk

I study the dynamic implications of climate policy and stranded assets risk on macroeconomic outcomes and asset prices. Using a general-equilibrium resource extraction model, I show that the anticipation of climate-policy action, which will restrict future fossil fuel use and is amplified by intensifying climate change, dynamically accelerates fossil fuel extraction and drives down fossil-fuel-related firm and spot prices. I use event study and VAR analysis, based on a novel empirical measure of climate-policy-related events, to show that increasing stranded assets risk has dynamic and persistent implications consistent with the model predictions