A smooth energy transition will require moving away from fossil fuels at a pace that is commensurate with the adoption of renewable energy. This challenging balancing act is complicated by the forward-looking nature of energy investment and the intertemporal dimensionof extraction decisions, both of which saddle companies and investors with the difficult taskof gauging future revenue streams in a potentially radically transformed environment. Thisposes a transition risk that is specific to each company and sector, but that for most oil andgas companies represents a (potentially existential) downside risk—that is, they may experience a substantial fall in revenues and in the value of their (physical and financial) assets(see van der Ploeg and Rezai (2020a) and Campiglio and van der Ploeg (2022)).