dependent on not (figure 15). But the impacts of other climate and trade policies and diversification strategies are not the same in size and direction across asset classes. For example, traditional diversification preserves asset value mainly in the fossil fuel-intensive sectors, which have been the important drivers of these countries’ growth and exports so far. Yet, traditional diversification restrains the growth of productive low-carbon assets although the final sectoral incidence is not clear-cut, because in FFDCs low-carbon, knowledge intensive sectors are often integrated into the fossil fuel value chains (figure 15).

_Figure 15: Impact of Climate Policies and Diversification Strategies on Asset Value in FFDCs by Sector (trillion US$ against BAU)_ <!-- Start of picture text --> Unilateral climate policies Unilateral climate policies<br>without border with border taxes based on Unilateral climate policies Cooperative climate<br>adjustments carbon content of imports with Nordhaus border taxes policies<br>TD AD TD AD TD AD TD AD<br>30<br>20<br>10<br>0<br>-10<br>-20<br>-30<br>-40<br>-50<br>-60<br>Coal rents Oil rents<br>Gas rents Carbon-intensive industry and extractives<br>Low-carbon assets Rest of the economy<br>Source: World Bank and Purdue University (ENVISAGE).<br>trillion US$ against BAU 2015-2050 in 2013 US$<br><!-- End of picture text --> Note: AD = asset diversification; BAU = business as usual; FFDCs = fossil fuel–dependent countries; ND = no diversification; TD = traditional diversification; units = nominal value added. The table illustrates the impact of external policies and domestic coping strategies on long-term asset value in fossil fuel–dependent countries by sector. All figures are in trillions of 2013 US$, difference against BAU, over the period 2021-2050, discounted at 6 percent from 2015. BAU is defined here as a slow increase in the carbon price of different climate clubs following historical trends, which de facto implies a lack of new climate policies, no additional diversification efforts, and no trade measures. For oil, coal, and gas extraction, asset value comprises resource rents and the value of built (produced) capital and is expressed as the difference in discounted trillion US$ from BAU at a 6 percent discount rate. For all other sectors, asset value represents the value of built (produced) capital and is represented in the same units. The asset value in the rest of the economy also includes the rental value of resources in the non–fossil fuel extractive sectors. This table covers only the assets whose value is represented in the standard economic (computable general equilibrium) model used for this study. The values of human capital, renewable natural capital, and land in agriculture or forestry are not accounted for here.

Diversification strategies that preserve the value of traditional economic assets slow down economic growth and welfare. The best-case scenario for the total value of economic assets consists of unilateral climate policies without trade sanctions and traditional diversification. The total value of FFDCs’ underground and produced wealth in this scenario increases by $16 trillion above BAU over the 2021-2050 period, despite knocking $11 trillion off the value of oil rents. This is because fossil fuel subsidies increase the value of produced assets in domestic heavy industries (using large volumes of coal and gas as inputs), that are also benefitting from asymmetric carbon prices and production leakage from LCT pioneers. The rest of the FFDC economies also enjoys higher value of produced capital thanks to forward and backward linkages with heavy industry. In the knowledge-intensive asset-diversification 25