IDEAS home Printed from https://ideas.repec.org/a/cup/macdyn/v27y2023i7p1932-1971_6.html
   My bibliography  Save this article

Financing the low-carbon transition: the impact of financial frictions on clean investment

Author

Listed:
  • Schuldt, Hendrik
  • Lessmann, Kai

Abstract

Carbon pricing aims to shift the risk-adjusted returns on investment in favor of green technologies vis-‘a-vis fossil investment, relying on efficient capital markets to redirect investment accordingly. Capital markets with financial frictions can distort this transmission of climate policy. This study analyses the impact of emission taxes on mitigation and low-carbon investment in the presence of financial frictions. We develop a two-sector environmental dynamic stochastic general equilibrium model calibrated to the Euro Area, to simulate an economic transition in line with the EU climate targets. Financial frictions dampen the response of the economy to the carbon tax such that the emissions target will be missed by 11 percentage points. Moreover, the adverse effects of financial frictions increase when climate policy is delayed. We further identify a volume and a risk effect that drive the impact of a financial wealth shock and an uncertainty shock on emission intensity.

Suggested Citation

  • Schuldt, Hendrik & Lessmann, Kai, 2023. "Financing the low-carbon transition: the impact of financial frictions on clean investment," Macroeconomic Dynamics, Cambridge University Press, vol. 27(7), pages 1932-1971, October.
    • Handle: RePEc:cup:macdyn:v:27:y:2023:i:7:p:1932-1971_6
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S1365100522000542/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:macdyn:v:27:y:2023:i:7:p:1932-1971_6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/mdy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.