ABSTRACT
: In Chapter 5, we show that it is possible for the countries in East Asia to reduce emissions to levels that are consistent with the world limiting average temperature changes to below 2°C. The model results allude to substantial shifts in resources, for example in the types of technologies used, or the level of output in the different sectors in the model. It is therefore reasonable to ask how much investment will be needed to bring about such a shift, and where the financing for that investment might come from.
This chapter explores these questions, drawing on the previous model results. It also discusses how, in the process of transition, there could be debt defaults and the possibility of ‘stranded’ fossil fuel assets. Although the countries in East Asia are not heavily exposed to the fossil fuel sector, they could be affected if there was a wider global recession caused by a sudden loss of value in stocks. Finally, the chapter explores how large-scale investment-debt dynamics can drive economic growth in the short term, but lead to slower rates of growth in the long term. The results from E3ME are contrasted to the results often obtained by standard Computable General Equilibrium models to highlight the importance of considering the financial system.
