Book contents
- The Macroeconomics of Decarbonisation
- Reviews
- The Macroeconomics of Decarbonisation
- Copyright page
- Contents
- Figures
- Tables
- Boxes
- Introduction
- 1 Understanding Deep Decarbonisation over the Long Run
- 2 Understanding Decarbonisation’s Short-Term Disruptions to Economic Activity
- 3 The Distributional Effects of Climate Policy
- 4 Public Finances and Decarbonisation
- 5 Greening Innovation, Industrial and Competition Policies
- 6 Mobilising the Financial System for Decarbonisation
- 7 Decarbonisation and Labour Markets
- 8 Greening Central Banks
- Conclusions
- Index
- References
6 - Mobilising the Financial System for Decarbonisation
Published online by Cambridge University Press: 01 February 2024
Book contents
- The Macroeconomics of Decarbonisation
- Reviews
- The Macroeconomics of Decarbonisation
- Copyright page
- Contents
- Figures
- Tables
- Boxes
- Introduction
- 1 Understanding Deep Decarbonisation over the Long Run
- 2 Understanding Decarbonisation’s Short-Term Disruptions to Economic Activity
- 3 The Distributional Effects of Climate Policy
- 4 Public Finances and Decarbonisation
- 5 Greening Innovation, Industrial and Competition Policies
- 6 Mobilising the Financial System for Decarbonisation
- 7 Decarbonisation and Labour Markets
- 8 Greening Central Banks
- Conclusions
- Index
- References
Summary
This chapter discusses how decarbonisation will affect capital markets and how capital markets can support decarbonisation. One notable focus is on the risk of ‘stranded assets’, that is assets that lose value because of decarbonisation, and the potential implications for financial stability. The chapter also analyses how capital markets can become a key enabler of decarbonisation, also thanks to new sustainable finance instruments such as green bonds.
- Type
- Chapter
- Information
- The Macroeconomics of DecarbonisationImplications and Policies, pp. 210 - 250Publisher: Cambridge University PressPrint publication year: 2024
References
Alessi, L., and Battiston, S. (2022) ‘Two Sides of the Same Coin: Green Taxonomy Alignment versus Transition Risk in Financial Portfolios’, International Review of Financial Analysis, 84, 102319, https://doi.org/10.1016/j.irfa.2022.102319Google Scholar
Alessi, L., Ossola, E., and Panzica, R. (2021) ‘What Greenium Matters in the Stock Market? The Role of Greenhouse Gas Emissions and Environmental Disclosures’, Journal of Financial Stability, 54, 100869, https://doi.org/10.1016/j.jfs.2021.100869Google Scholar
Ameli, N., Dessens, O., Winning, M., Cronin, J., Chenet, H., Drummond, P., et al. (2021) ‘Higher Cost of Finance Exacerbates a Climate Investment Trap in Developing Economies’, Nature Communications, 12, Article 4046, https://doi.org/10.1038/s41467-021-24305-3Google Scholar
Bank of England (2022) Results of the 2021 Climate Biennial Exploratory Scenario (CBES) (London: Bank of England), www.bankofengland.co.uk/stress-testing/2022/results-of-the-2021-climate-biennial-exploratory-scenarioGoogle Scholar
Basel Committee on Banking Supervision (2021) ‘Climate-Related Risk Drivers and Their Transmission Channels’, BIS, www.bis.org/bcbs/publ/d517.pdfGoogle Scholar
Battiston, S., Mandel, A., Monasterolo, I., Schütze, F., and Visentin, G. (2017) ‘A Climate Stress-Test of the Financial System’, Nature Climate Change, 7:4, Article 4, https://doi.org/10.1038/nclimate3255Google Scholar
Battiston, S., Monasterolo, I., Riahi, K., and van Ruijven, B. J. (2021) ‘Accounting for Finance Is Key for Climate Mitigation Pathways’, Science, 372:6545, 918–20, https://doi.org/10.1126/science.abf3877Google Scholar
Boffo, R., and Patalano, R. (2020) ESG Investing: Practices, Progress and Challenges (Paris: OECD), www.oecd.org/finance/ESG-Investing-Practices-Progress-Challenges.pdfGoogle Scholar
Carney, M. (2015) ‘Breaking the Tragedy of the Horizon – Climate Change and Financial Stability’, Speech given at Lloyd’s of London, London, 29 September, www.bankofengland.co.uk/speech/2015/breaking-the-tragedy-of-the-horizon-climate-change-and-financial-stabilityGoogle Scholar
Cheng, G., Ehlers, T., and Packer, F. (2022) ‘Sovereigns and Sustainable Bonds: Challenges and New Options’, BIS Quarterly Review, Bank for International Settlements, www.bis.org/publ/qtrpdf/r_qt2209d.pdfGoogle Scholar
Climate Policy Initiative (2022) ‘Global Landscape of Climate Finance: A Decade of Data’, Climate Policy Initiative, www.climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-a-decade-of-data/Google Scholar
Delis, M. D., de Greiff, K., and Ongena, S. (2019) ‘Being Stranded with Fossil Fuel Reserves? Climate Policy Risk and the Pricing of Bank Loans’, EBRD Working Paper No. 231, European Bank for Reconstruction and Development, www.ebrd.com/publications/working-papers/fossil-fuel-reservesGoogle Scholar
Demekas, D., and Grippa, P. (2021) ‘Financial Regulation, Climate Change, and the Transition to a Low-Carbon Economy: A Survey of the Issues’ (IMF Working paper No. 2021/296), www.imf.org/en/Publications/WP/Issues/2021/12/17/Financial-Regulation-Climate-Change-and-the-Transition-to-a-Low-Carbon-Economy-A-Survey-of-510974.Google Scholar
Diluiso, F., Annicchiarico, B., Kalkuhl, M., and Minx, J. C. (2021) ‘Climate Actions and Macro-Financial Stability: The Role of Central Banks’, Journal of Environmental Economics and Management, 110, 102548, https://doi.org/10.1016/j.jeem.2021.102548Google Scholar
D’Orazio, P., and Popoyan, L. (2019) ‘Fostering Green Investments and Tackling Climate-Related Financial Risks: Which Role for Macroprudential Policies?’, Ecological Economics, 160, 25–37, https://doi.org/10.1016/j.ecolecon.2019.01.029Google Scholar
European Central Bank (2021) The State of Climate and Environmental Risk Management in the Banking Sector: Report on the Supervisory Review of Banks’ Approaches to Manage Climate and Environmental Risks (Frankfurt: European Central Bank), www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.202111guideonclimate-relatedandenvironmentalrisks~4b25454055.en.pdfGoogle Scholar
Geddes, A., Schmidt, T. S., and Steffen, B. (2018) ‘The Multiple Roles of State Investment Banks in Low-Carbon Energy Finance: An Analysis of Australia, the UK and Germany’, Energy Policy, 115, 158–70, https://doi.org/10.1016/j.enpol.2018.01.009Google Scholar
Hirth, L., and Steckel, J. C. (2016) ‘The Role of Capital Costs in Decarbonizing the Electricity Sector’, Environmental Research Letters, 11:11, 114010, https://doi.org/10.1088/1748-9326/11/11/114010CrossRefGoogle Scholar
IEA Levelised Cost of Energy Calculator (2020), www.iea.org/data-and-statistics/data-tools/levelised-cost-of-electricity-calculatorGoogle Scholar
IMF (2022) Global Financial Stability Report (Washington, DC: International Monetary Fund), www.imf.org/en/Publications/GFSR/Issues/2022/10/11/global-financial-stability-report-october-2022Google Scholar
IPCC (2022) IPCC AR6 WGIII Chapter 15: Investment and Finance (Sixth report), www.ipcc.ch/report/ar6/wg3/downloads/Google Scholar
Javadi, S., and Masum, A.-A. (2021) ‘The Impact of Climate Change on the Cost of Bank Loans’, Journal of Corporate Finance, 69, 102019, https://doi.org/10.1016/j.jcorpfin.2021.102019Google Scholar
Kölbel, J. F., Heeb, F., Paetzold, F., and Busch, T. (2020) ‘Can Sustainable Investing Save the World? Reviewing the Mechanisms of Investor Impact’, Organization & Environment, 33:4, 554–74, https://doi.org/10.1177/1086026620919202Google Scholar
Lloyd, S. M., Hadziosmanovic, M., Rahimi, K., and Bhatia, P. (2022) ‘Trends Show Companies Are Ready for Scope 3 Reporting with US Climate Disclosure Rule’, www.wri.org/update/trends-show-companies-are-ready-scope-3-reporting-us-climate-disclosure-ruleGoogle Scholar
Mazzucato, M., and Semieniuk, G. (2018) ‘Financing Renewable Energy: Who Is Financing What and Why It Matters’, Technological Forecasting and Social Change, 127, 8–22, https://doi.org/10.1016/j.techfore.2017.05.021Google Scholar
Mésonnier, J.-S., and Nguyen, B. (2021) ‘Showing Off Cleaner Hands: Mandatory Climate-Related Disclosure by Financial Institutions and the Financing of Fossil Energy’, Working Paper Series No. 800, Banque de France, https://publications.banque-france.fr/en/showing-cleaner-hands-mandatory-climate-related-disclosure-financial-institutions-and-financingGoogle Scholar
Monasterolo, I., Mandel, A., Battiston, S., Mazzocchetti, A., Oppermann, K., Coony, J., et al. (2022) ‘The Role of Green Financial Sector Initiatives in the Low-Carbon Transition: A Theory of Change’, Policy Research Working Paper No. 10181, World Bank, https://openknowledge.worldbank.org/handle/10986/38028Google Scholar
Nemes, N., Scanlan, S. J., Smith, P., Smith, T., Aronczyk, M., Hill, S., et al. (2022) ‘An Integrated Framework to Assess Greenwashing’. Sustainability, 14:8, Article 8, https://doi.org/10.3390/su14084431Google Scholar
Polzin, F., and Sanders, M. (2020) ‘How to Finance the Transition to Low-Carbon Energy in Europe?’, Energy Policy, 147, 111863, https://doi.org/10.1016/j.enpol.2020.111863Google Scholar
Polzin, F., Sanders, M., and Serebriakova, A. (2021) ‘Finance in Global Transition Scenarios: Mapping Investments by Technology into Finance Needs by Source’, Energy Economics, 99, 105281, https://doi.org/10.1016/j.eneco.2021.105281Google Scholar
Rempel, A., and Gupta, J. (2020) ‘Conflicting Commitments? Examining Pension Funds, Fossil Fuel Assets and Climate Policy in the Organisation for Economic Co-operation and Development (OECD)’, Energy Research & Social Science, 69, 101736, https://doi.org/10.1016/j.erss.2020.101736Google Scholar
Schmidt, T. S., Steffen, B., Egli, F., Pahle, M., Tietjen, O., and Edenhofer, O. (2019) ‘Adverse Effects of Rising Interest Rates on Sustainable Energy Transitions’, Nature Sustainability, 2:9, Article 9, https://doi.org/10.1038/s41893-019-0375-2Google Scholar
Semieniuk, G., Campiglio, E., Mercure, J., Volz, U., and Edwards, N. R. (2021) ‘Low‐Carbon Transition Risks for Finance’, WIREs Climate Change, 12:1, https://doi.org/10.1002/wcc.678CrossRefGoogle Scholar
Semieniuk, G., Holden, P. B., Mercure, J.-F., Salas, P., Pollitt, H., Jobson, K., et al. (2022) ‘Stranded Fossil-Fuel Assets Translate to Major Losses for Investors in Advanced Economies’, Nature Climate Change, 12, 532–38, https://doi.org/10.1038/s41558-022-01356-yGoogle Scholar
Sen, S., and von Schickfus, M.-T. (2020) ‘Climate Policy, Stranded Assets, and Investors’ Expectations’, Journal of Environmental Economics and Management, 100, 102277, https://doi.org/10.1016/j.jeem.2019.102277Google Scholar
UNFCC (2016) ‘The Paris Agreement’, United Nations Framework Convention on Climate Change, FCCC/CP/2015/10/Add.1, https://unfccc.int/documents/184656Google Scholar
van der Ploeg, F., and Rezai, A. (2020) ‘Stranded Assets in the Transition to a Carbon-Free Economy’, Annual Review of Resource Economics, 12:1, 281–98, https://doi.org/10.1146/annurev-resource-110519-040938Google Scholar
Venturini, A. (2022) ‘Climate Change, Risk Factors and Stock Returns: A Review of the Literature’, International Review of Financial Analysis, 79, 101934, https://doi.org/10.1016/j.irfa.2021.101934Google Scholar