Thesis

My thesis, entitled "The Balance Sheet of IPCC Pathways - Assessing the financial stability properties of canonical decarbonation pathways and back" tackles low-carbon transition risks from a macro-financial perspective, with a specific application to the IPCC's decarbonation scenarios.  It was defended on December 15th 2023n with the manuscript available (or soon to be) here.

The dissertation starts a critical review of the transition risk literature. This survey allowed to better map the relevant causality channels for the study of transition risks while highlighting different gaps in the literature (Chapter 1). 

In a second part, the thesis answers its main question, and studies transition risks along mitigation pathways. I first propose a stock-flow model amenable to transition pathways, the Financial Asset Stranding Model – Investment in Decarbonisation (FASM-ID) framework and applies it to series of well-established scenarios dedicated to studying transition risks (Chapter 2). Then, this methodology is extended to a broader set of scenarios taken from the Intergovernmental Panel on Climate Change’s mitigation pathway database to disentangle what kind of scenarios are most prone to transition risks (Chapter 3). 

In a third part, by building on previous chapters, I propose some theoretical and empirical advances for a better assessment of transition risks. A new way to model economic expectations, which have been singled out as a key factor of transition risks, is developed (Chapter 4). Second, I explore how the equity exposures of financial agents to greenhouse-gas intensive companies have evolved between the Paris Agreement and the Covid crisis. This research aims to provide a better understanding of how the distribution of transition risks across the financial system may evolve through time, which could be helpful in modelling the dynamic behaviour of the financial sector and in designing sound policies (Chapter 5). 

Eventually, in a final part, the dissertation proposes a case study of a radical policy in tackling transition risks: the setup of a climate bad bank (structure de défaisance climat). Such an institution would take those assets most at risk of stranding onto its balance sheet to abate transition risks. This chapter compares such policy with previous, regular bad banks set up during financial crises, and proposes a tentative blueprint for a climate bad bank (Chapter 6).