A new study published in Nature suggests divestment will beat the “green paradox”, i.e. the phenomenon of a temporary increase in carbon emissions in response to climate policies aimed at cutting emissions, if “substantial” carbon pricing is announced.
While putting the Paris agreement into practice could trigger opposite reactions from investors and fossil fuel owners, it believes overall CO2 emissions would be reduced eventually.
For instance, the anticipation of strong carbon reduction policies might drive up emissions as fossil fuel operators accelerate to maximise profits before new regulations kick in.
At the same time, investors may stop putting their money into coal and other fossil fuel plants to avoid investing in potentially stranded assets.
This would lead to a reduction in emissions by between 5% and 20%, “depending on the strength of the climate policy, already in the time before the climate policy gets implemented”.
Lead Author Nico Bauer from the Potsdam Institute for Climate Impact Research said: “We find that 10 years before carbon pricing policies are actually introduced, investors start pulling their money out of the coal power sector.
“They shy away from investing in fossil-fuelled power plants as they realise that the lifetime during which these plants will make money will be curtailed by the future climate policy.”