Finance, climate-change and radical uncertainty: Towards a precautionary approach to financial policy

Chenet, Hugues; Ryan-Collins, Josh; Lerven, Frank van

doi:10.1016/j.ecolecon.2021.106957

Cited by 150 publications

(69 citation statements)

References 38 publications

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“…if a green initial expansion cannot be sustainably funded and ends in an unexpected disorderly contraction. Financial stability risks connected to climate change are currently debated as the possibility of physical 'Green Swan' events that create financial turmoil as an exogenous shock (Bolton et al 2020), or as transition risks that emerge because the Green Transition creates stranded carbon-intensive assets which suddenly lose their market value and hence reduce the equity capital of those balance sheets in the monetary architecture who hold them (Chenet, Ryan-Collins, and van Lerven 2021;D'Orazio and Popoyan 2019). However, the bursting of a possible 'green financial bubble' created by a green initial expansion is not a well-established position in the green finance literature-this topic has only recently started to get some attention (Brav and Heaton 2021;Heger and Åkerman 2021).…”

Section: Figure 2-three Phases Of Financing Large-scale Transformationsmentioning

confidence: 99%

“…Ever since Nicholas Stern's landmark report described climate change as 'the greatest market failure the world has ever seen' (Stern 2006), the dominant framework has been to see carbon emissions as an externality-a form of market failure-that is not adequately priced in an otherwise efficient economic system (Liu, Bauman, and Chuang 2019). The policy prescriptions stemming from this framework focus on market-correcting strategies that would 'internalize' this externality (Chenet, Ryan-Collins, and van Lerven 2021)-most prominently via carbon taxes or cap-and-trade. This is the world of Marshall and Pigou where the goal itself is not necessarily netzero but an optimal level of pollution that is determined through marginal analysis of benefits and costs of emissions and then achieved through the invisible hand of the (financial) market.…”

Section: Introductionmentioning

confidence: 99%

“…The creation of credit money can be carried out both by public and private balance sheets such as commercial banks and shadow banks and in different parts of the system. Some recent scholarship hints at this (Chenet, Ryan-Collins, and van Lerven 2021;Hockett 2020) but as yet there is no fully developed framework.…”

Section: Introductionmentioning

confidence: 99%

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Monetary Architecture and the Green Transition

Murau¹,

Haas²,

Guter-Sandu³

2022

Preprint

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How to finance the Green Transition towards net-zero carbon emissions remains an open question. The literature either operates within a market-failure paradigm that calls for a Pigou tax to help markets correct themselves, or via war finance analogies that offer a ‘triad’ of state intervention possibilities: taxation, treasury borrowing, and central bank money creation. These frameworks often lack a thorough conceptualisation of endogenous credit money creation, for instance when resorting to loanable funds theory, and disregard the systemic and procedural dimensions of financing the Green Transition. We propose that ‘monetary architecture’, which perceives the monetary and financial system as a constantly evolving and historically specific hierarchical web of interlocking balance sheets, offers a more comprehensive framework to conceptualize the systemic and procedural financing challenges. Using the US as an example, we draw implications of a systemic financing view while considering a division of labor between ‘firefighting’ institutions such as the Federal Reserve and the Treasury, and ‘workhorse’ institutions such as off-balance-sheet fiscal agencies, commercial banks, and shadow banks. We argue further that financing the Green Transition must undergo three ideal-typical phases—initial balance sheet expansion, long-term funding, and possibly final contraction—that require diligent macro-financial management to avoid financial instability.

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Section: Figure 2-three Phases Of Financing Large-scale Transformationsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Monetary Architecture and the Green Transition

Murau¹,

Haas²,

Guter-Sandu³

2022

Preprint

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“…In general, the systematic theoretical research on the relationship between circular economy and green finance has not really begun, but some scholars have begun to conduct research from certain angles. Chenet et al (2021) explored the relationship between green finance, circular economy and sustainable development and pointed out that the development of the circular economy cannot be separated from the support of finance, and the green operation of finance is the best support for the development model of the circular economy. Moreover, it proposed several strategies to support a circular economy with green finance.…”

Section: Related Workmentioning

confidence: 99%

Research on the action mechanism of circular economy development and green finance based on entropy method and big data

Xiao-fei

2021

JEIM

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PurposeBy calculating the information entropy of the indicator and measuring the amount of information in the data, this paper determines the weight of the indicator according to the impact of the relative change of the indicator on the whole.Design/methodology/approachIn order to study the action mechanism of circular economy development and green finance, based on the entropy method, this paper constructs a system analysis model based on event research.FindingsMoreover, this paper uses the analytic hierarchy process to obtain subjective weights based on expert opinions and then uses the entropy method to obtain objective weights and finally combines the two. In addition, an intelligent model is constructed based on the action mechanism of circular economy development and green finance to improve the system structure.Originality/valueFinally, this paper designs experiments to verify the performance of the system model. The research results show that the system model constructed in this paper meets the actual situation.

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“…Although they cannot substitute for an adequate climate policy (Lane 2019;Weidmann 2020), it is now widely acknowledged that they have to take action to scale up green finance and adopt regulations to address climate-related financial risks. The rationale for this is that (i) climate change affects monetary policy and financial regulation (Batten et al 2016;Campiglio 2016;D'Orazio and Popoyan 2019;Chenet et al 2021) and (ii) financial actors play an essential role in the global economy (Rogoff 1999;Mazzucato and Penna 2016;Wang 2017;Geddes et al 2018).…”

Section: Green Financial Development: Climate-related Financial Policies and Environmental Qualitymentioning

confidence: 99%

Exploring the effects of climate-related financial policies on carbon emissions in G20 countries: a panel quantile regression approach

D’Orazio

Dirks

2021

Environ Sci Pollut Res

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This paper studies the effects of financial development, economic growth, and climate-related financial policies on carbon emissions for G20 countries. The focus is particularly on financial policies implemented to scale up green finance and address climate-related financial risks from 2000 to 2017 and represent this paper’s value added. The empirical results obtained by relying on the panel quantile regression approach indicate that the impacts of the different explanatory variables on carbon emission are heterogeneous. Specifically, the effect of the stock of short-term financial policies on carbon emissions is negative, and its effect becomes smaller at higher quantiles. The stock of long-term policies also shows significant negative coefficients, but its impact is stronger for higher quantiles. No significance is reported for the lowest quantile. Financial development contributes to improving environmental quality, and its impact is larger in higher emission countries. Energy consumption increases carbon emissions, with the strongest effects occurring at higher quantiles. Our results also support the validity of the EKC relationship and positive effects of GDP and population on high carbon emissions levels. Estimation results are robust to alternative model specifications and after controlling for the role played by adopting international climate change mitigation policies as proxied by the adoption of the Kyoto Protocol.

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Finance, climate-change and radical uncertainty: Towards a precautionary approach to financial policy

Cited by 150 publications

References 38 publications

Monetary Architecture and the Green Transition

Monetary Architecture and the Green Transition

Research on the action mechanism of circular economy development and green finance based on entropy method and big data

Exploring the effects of climate-related financial policies on carbon emissions in G20 countries: a panel quantile regression approach

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