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Can natural gas as a bridge fuel catalyze the low-carbon transition? Evidence from an NK-E-DSGE model

Author

Listed:
  • Xiao, Jianzhong
  • Ruan, Shengzhe
  • Hu, Xing
  • Xie, Sisi
  • Zhang, Xinzhu

Abstract

Aggressive low-carbon transition policies can accelerate decarbonization but may also amplify stranded asset risks in fossil fuel sectors, threatening macro-financial stability. This paper examines whether natural gas, as a transitional “bridge fuel”, can mitigate these risks during the energy transition. We develop a New Keynesian Environmental DSGE (NK-E-DSGE) model that distinguishes among fossil energy, bridge fuels, and clean energy, and incorporates green bond policies under financial frictions. Results show that aggressive green bonds trigger a “Climate-Minsky” collapse. Conversely, an orderly gas-bridge transition smooths asset volatility. Policy implications suggest defining natural gas as a strategic buffer and adopting counter-cyclical green macro-prudential policies to balance decarbonization with financial stability.

Suggested Citation

  • Xiao, Jianzhong & Ruan, Shengzhe & Hu, Xing & Xie, Sisi & Zhang, Xinzhu, 2026. "Can natural gas as a bridge fuel catalyze the low-carbon transition? Evidence from an NK-E-DSGE model," Finance Research Letters, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:finlet:v:98:y:2026:i:c:s1544612326003740
    DOI: 10.1016/j.frl.2026.109844
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