Financial impacts of climate change mitigation policies and their macroeconomic implications: a stock-flow consistent approach

Bovari, Emmanuel; Giraud, Gaël; McIsaac, Florent

doi:10.1080/14693062.2019.1698406

Cited by 21 publications

(11 citation statements)

References 36 publications

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“…There are two reasons why we have opted for such a policy mix instead of an isolated carbon tax policy. First, this policy mix can bring about more substantial outcomes in terms of an increase in green investment and carbon emissions reduction (see Dafermos and Nikolaidi, 2019;Bovari et al, 2018b;Bovari et al, 2020). Second, broadly speaking, the distribution of the carbon tax revenues to the economy via green subsidies is politically a much more realistic scenario given the significant distributional effects of a carbon tax policy (for these effects see e.g.…”

Section: Combining Green Differentiated Capital Requirements With Grementioning

confidence: 99%

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How can green differentiated capital requirements affect climate risks? A dynamic macrofinancial analysis

Dafermos

Nikolaidi

2021

Journal of Financial Stability

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Using an ecological macrofinancial model, we explore the potential impact of the 'green supporting factor' (GSF) and the 'dirty penalising factor' (DPF) on climate-related financial risks. We identify the transmission channels by which these green differentiated capital requirements (GDCRs) can affect credit provision and loan spreads, and we analyse these channels within a dynamic framework in which climate and macrofinancial feedback effects play a key role. Our main findings are as follows. First, GDCRs can reduce the pace of global warming and decrease thereby the physical financial risks. This reduction is quantitatively small, but is enhanced when the GSF and the DPF are implemented simultaneously or in combination with green fiscal policies. Second, the DPF reduces banks' credit provision and leverage, making them less fragile. Third, both the DPF and the GSF generate some transition risks: the GSF increases bank leverage because it boosts green credit and the DPF increases loan defaults since it reduces economic activity. These effects are small in quantitative terms and are attenuated when there is a simultaneous implementation of the DPF and the GSF. Fourth, fiscal policies that boost green investment amplify the transition risks of the GSF and reduce the transition risks of the DPF; the combination of green fiscal policy with the DPF is thereby a potentially effective climate policy mix from a financial stability point of view.

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Section: Combining Green Differentiated Capital Requirements With Grementioning

confidence: 99%

“…We have used the US GDP deflator in order to make the adjustment.38 For an SFC model that follows more closely the approach of the standard IAMs, seeBovari et al (2018a),Bovari et al (2018b) andBovari et al (2020). In this model the emissions reduction rate is derived though a cost minimisation problem.…”

mentioning

confidence: 99%

How can green differentiated capital requirements affect climate risks? A dynamic macrofinancial analysis

Dafermos

Nikolaidi

2021

Journal of Financial Stability

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“…Extreme weather events and other forms of risks will have increased risk of negative socioeconomic repercussions as a due to climate change unless adequate change mitigation measures are taken across a wide range of economic sectors and geographical areas (Carney 2015). For energy policies to be effective in achieving the low-carbon transition and averting catastrophic climate change, both industrialized and developing economies will need to undergo significant transformations (Bovari et al 2020). This could cause Responsible Editor: Nicholas Apergis considerable disturbance, negatively affecting a few business activities and industries while creating opportunities for others (Weber et al 2018).…”

Section: Introductionmentioning

confidence: 99%

Financial stability role on climate risks, and climate change mitigation: Implications for green economic recovery

Sun

Fang

Iqbal

et al. 2022

Environ Sci Pollut Res

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As a response to the topic of how financial stability might be used to effectively finance for the mitigation of climate change and climate risks, it is important to look at the carbon risk that is still present in G-5 nations. The goal of our research is to determine the impact of financial stability on climate risk in order to effectively manage climate mitigation efforts. A technique called GMM is used to achieve this goal. Climate change mitigation was found to be substantial at 18 percent, while financial stability and carbon hazards were found significant at 21 percent, according to the conclusions of the study. Furthermore, the G-5 countries’ 19.5% correlation between financial stability and emissions drift, which raises climate change concerns, is noteworthy. In order to implement green economic recovery methods, one of the most strongly regarded approaches to mitigating climate change and ensuring long-term financial potential at the national scale, a country’s financial stability is required. The research on green economic expansion also offers the associated stakeholders with detailed policy implications on this relevance.

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“…Several studies justify the reason behind the low contribution of private investment in comparison to others (Cárdenas Rodríguez et al 2015;Ruiz et al 2016;Taghizadeh-Hesary and Yoshino 2019), and highlights that the nature of green investments in terms of risk and return trade-off is one of the reasons mentioned, among others (Ruiz et al 2016). According to (Focardi and Fabozzi 2020;Akomea-Frimpong et al 2021;Bovari et al 2020), to increase the level of private green investment, creating coordination between financial, and environmental regulations are suggested. To do so, the role of government authorities and monetary policies are found important (Berrou et al 2019).…”

Section: Literature Reviewmentioning

confidence: 99%

“…The financing tools such as green bonds and climate bonds were introduced for funding environmentally beneficial initiatives (Tolliver et al 2020). As many academic writers have pointed out (Akomea-Frimpong et al 2021;Chang et al 2021;Pyka and Nocon 2021;Aller et al 2018;Baloch et al 2018;Bovari et al 2020;Lamperti et al 2021), however, the financial gap on green investment is still huge in amount.…”

Section: Literature Reviewmentioning

confidence: 99%

The Effect of Monetary Policy and Private Investment on Green Finance: Evidence from Hungary

Desalegn

Fekete-Farkas

Tangl

2022

JRFM

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The objective of this study was to examine the effect of monetary policy and private investment on green finance in the case of Hungary. The study used an explanatory research design and a quantitative research approach. Quarterly secondary time series data over 8 years (2013–2020) were utilized. More specifically, the study used Johnson co-integration test and vector error correction model to investigate the long and short-run relationship among variables. The study’s findings imply that monetary policy, as measured by interest rates and the broad money supply, has a mixed effect on the level of green financing. Interest rates, in particular, have a negative and significant relationship with green finance in both the long and short run. However, a broad money supply has a positive but insignificant relationship with green finance in the long run. Private investment has a positive and significant relationship with green financing in both the long and short run. The study also used inward and outward foreign direct investment, and greenhouse gas as a control variable of the study. The study finding implies that inward foreign direct investment has a positive and significant relationship with green financing in both the long and short run. On the other hand, outward foreign direct investment and the level of greenhouse gas have a negative and significant relationship with green finance in both the long and short run. The study also discovered that over time series, disturbance in domestic private investment was the most determinant factor in forecast error variance of green financing. In addition, the result of document analysis shows that the majority of Hungarian credit institutions are dealing with their corporate strategy rather than their sustainability strategy. Hence, progressive approaches are needed from the credit institution to frame their strategy under the concept of sustainable development goals. The finding of this study will contribute to the existing literature on the study area, provide suggestions on green finance and green monetary policy approaches, provide implications on key stakeholders of green financing, as well as the experience of different economies. The study advises central banks, credit institutions, and regulatory authorities to consider both neoliberal and reformist approaches of green finance and green monetary policies in aid to increase green investment.

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Financial impacts of climate change mitigation policies and their macroeconomic implications: a stock-flow consistent approach

Cited by 21 publications

References 36 publications

How can green differentiated capital requirements affect climate risks? A dynamic macrofinancial analysis

How can green differentiated capital requirements affect climate risks? A dynamic macrofinancial analysis

Financial stability role on climate risks, and climate change mitigation: Implications for green economic recovery

The Effect of Monetary Policy and Private Investment on Green Finance: Evidence from Hungary

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