Achieving net zero emissions requires a structural transformation of the energy system, yet the economic and financial consequences of this shift remain poorly understood. Studies often focus on specific features of the transition – such as green investment and its financing, technological change and cost shifts, or financial transition risks – and consequently offer differing perspectives on its potential impacts. Economic models, in turn, typically focus on a limited number of these transition features, and may also be methodologically constrained in their ability to capture others (such as financial-real economy interactions). As a result most economic models fail to account for several key energy transition features and the potential interactions between them.
To address this gap, we present TranSim 2, a stock-flow consistent, input-output macroeconomic model capable of integrating multiple transition features – including green investment and it’s financing, technological/cost change, and financial transition risks – and the interactions between them. We use this model to simulate the macroeconomic and financial consequences of orderly vs. disorderly and anticipated vs. unanticipated energy transitions.
Our simulation results show that: i) faster, more ‘disorderly’ transitions are more disruptive than slower, more orderly transitions; and that ii) transitions in which fossil fuel firms and investors on financial markets are slow to anticipate the transition are more disruptive than those in which expectations adjust more quickly. In general, faster transitions are more disruptive as they generate more inflation, loan defaults, interest rate hikes, asset price fluctuations, functional income shifts, and cost increases. On the other hand transitions in which expectations adjust more slowly are more destabilising to financial markets as misaligned expectations leads to overinvestment by fossil fuel firms and the misallocation of financial assets.
About the speaker:
Andrew Jackson is a senior research fellow at the Centre for the Understanding of Sustainable Prosperity (CUSP) at the University of Surrey. His research focuses on the macroeconomic consequences of transitioning to a low-carbon economy, monetary and banking systems, and fiscal and monetary policy. His ongoing work includes the development of a large-scale stock-flow consistent input-output model to examine macroeconomic, sectoral, and financial interactions in energy transitions, an analysis of monetary and fiscal coordination in post-growth and net-zero transitions, and an investigation into the determinants of inflation in energy transitions and potential policy responses.
Andrew is currently a principal investigator on the EU Horizon funded project Models, Assessment and Policies for Sustainability (MAPS). He was previously a co-investigator on the ESRC funded Rebuilding Macroeconomics project ‘Modelling transition risk: developing an agent-based, stock-flow consistent, input-output macroeconomic framework’. Andrew holds a PhD from the University of Surrey, and a master’s and a bachelor’s degree in economics from the University of Sussex. Prior to completing his PhD and starting work at CUSP, Andrew spent several years working as Head of Research for a think tank that specialises in research into monetary and banking systems.
