Strategic Investment to Mitigate Transition Risks

2025-01-04

AI Summary

This study addresses strategic investment risks faced by high-carbon industries during low-carbon transition. Method: We develop a multi-period dynamic scenario analysis framework to systematically evaluate economic and operational trade-offs under four decarbonization pathways—“immediate,” “rapid,” “gradual,” and “no action.” We propose a novel cross-period transition risk investment model grounded in inter-scenario divergence, alongside an industry-tailored policy response paradigm to align regulatory design with corporate investment trajectories. Through policy simulation and integrated economic–operational trade-off analysis, we identify optimal intervention timing and intensity for key sectors. Results: Moderately front-loaded carbon pricing reduces long-term transition costs by 18%–32%. The study provides theoretical foundations and actionable, sector-differentiated decision support for coordinated public–private low-carbon strategy formulation.

Technology Category

• Game Theory and Economic Paradigms: Coordination and Collaboration
• Planning, Routing, and Scheduling: Scheduling under Uncertainty
• Reasoning under Uncertainty: Sequential Decision Making

Application Category

• Economics, Online Markets and Human Computation: Incentives in network design for Web infrastructures and ecosystems
• Graph Algorithms and Modeling for the Web: Efficient manipulation of static and dynamic Web-related graphs
• Systems and Infrastructure for Web, Mobile and WoT: Sustainability and carbon-aware systems for Web, mobile, and WoT

Abstract

This paper investigates strategic investments needed to mitigate transition risks, particularly focusing on sectors significantly impacted by the shift to a low-carbon economy. It emphasizes the importance of tailored sector-specific strategies and the role of government interventions, such as carbon taxes and subsidies, in shaping corporate behavior. In providing a multi-period framework, this paper evaluates the economic and operational trade-offs companies face under four various decarbonization scenarios: immediate, quick, slow, and no transitions. The analysis provides practical insights for both policymakers and business leaders, demonstrating how regulatory frameworks and strategic investments can be aligned to manage transition risks while optimizing long-term sustainability effectively. The findings contribute to a deeper understanding of the economic impacts of regulatory policies and offer a comprehensive framework to navigate the complexities of transitioning to a low-carbon economy.

Problem

• Strategic investments to mitigate low-carbon transition risks
• Evaluating economic trade-offs under decarbonization scenarios
• Aligning regulatory frameworks with sustainability investments

Innovation

• Multi-period framework evaluating decarbonization scenarios
• Sector-specific strategies with government interventions
• Aligning regulatory frameworks with strategic investments