Investing in low carbon transitions: Energy finance as an adaptive market

Stephen Hall, Timothy Foxon, Ronan Bolton

Research output: Contribution to journalArticlepeer-review


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 neo-classical notions of capital markets and innovation finance. This research draws on Grubb et al’s (2014) notion 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 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 Markets Hypothesis is presented as a suitable framework 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.
Original languageEnglish
Pages (from-to)280-298
Number of pages19
JournalClimate Policy
Issue number3
Publication statusPublished - 2017


  • adaptive market hypothesis
  • efficient market hypothesis
  • energy finance
  • investment
  • planetary economics


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