Pollution permits and financing costs

Steven Ongena, Fabio Antoniou, Manthos Delis () and Christos Tsoumas

No 15517, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Effective environmental policy should consider how the financiers of polluting firms behave. In a theoretical model describing the periods before and after policy implementation, we show that loan spreads for firms participating in cap-and-trade programs are a function of the costs of compliance and the specific features of the permits markets. With higher permits storage and lower permit prices, firm financing costs fall. Our empirical analysis exploits the dichotomy created by phase III of the EU Emission Trading System, designed to increase and pass the cost of CO2 emissions to the polluters. In contrast with possible program intentions but in line with our theoretical predictions, loan spreads fall by 25% on average starting in 2013. We empirically identify permits storage before program implementation and its associated effect as key drivers of the fall in loan spreads for affected firms, and we show that this dynamic partly undermines the expected reduction in CO2 emissions.

Keywords: Pollution permits; Loan spreads; Bond spreads; Eu emission trading system; Co2 emissions (search for similar items in EconPapers)
JEL-codes: G12 G21 Q5 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP15517 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Pollution permits and financing costs (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:15517

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP15517

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().