Investing in low-carbon transitions: energy finance as an adaptive market

Hall, Stephen, Foxon, Timothy J and Bolton, Ronan (2017) Investing in low-carbon transitions: energy finance as an adaptive market. Climate Policy, 17 (3). pp. 280-298. ISSN 1469-3062

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Abstract

The amount of capital required to transition energy systems to low-carbon futures is very large, yet analysis of energy systems change has been curiously quiet on the role of capital markets in financing energy transitions. This is surprising given the huge role finance and investment must play in facilitating transformative change. We argue this has been due to a lack of suitable theory to supplant neoclassical notions of capital markets and innovation finance. This research draws on the notion from Planetary economics: Energy, climate change and the three domains of sustainable development, by Grubb and colleagues, that planetary economics is defined by three ‘domains’, which describe behavioural, neoclassical, and evolutionary aspects of energy and climate policy analysis. We identify first- and second-domain theories of finance that are well established, but argue that third-domain approaches, relating to evolutionary systems change, have lacked a compatible theory of capital markets. Based on an analysis of electricity market reform and renewable energy finance in the UK, the ‘adaptive market hypothesis' is presented as a suitable framework with which to analyse energy systems finance. Armed with an understanding of financial markets as adaptive, scholars and policy makers can ask new questions about the role of capital markets in energy systems transitions.

Item Type: Article
Keywords: adaptive market hypothesis; efficient markets hypothesis; energy finance; investment; planetary economics
Schools and Departments: School of Business, Management and Economics > SPRU - Science Policy Research Unit
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences > GE300 Environmental management
H Social Sciences > HG Finance > HG4501 Investment, capital formation, speculation
Depositing User: Timothy Foxon
Date Deposited: 10 Nov 2015 14:08
Last Modified: 21 Aug 2017 11:42
URI: http://sro.sussex.ac.uk/id/eprint/57860

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