Green technology choices under the cap-and-trade mechanism with insurer green finance in a dragon-king environment

Shi Chen, Fu-Wei Huang and Jyh-Horng Lin

Energy Economics, 2023, vol. 117, issue C

Abstract: The article investigates an insurer's green finance toward sustainability by explicitly capping borrowing-firm credit risk. The borrowing firms participate in the cap-and-trade mechanism and conduct green technology choices in a dragon-king environment due to confluent climate changes. The policy surrender incurs in the insurer's asset-liability matching management. The model can explore the effects of the borrowing-firm green trades and green technology choices on the insurer's performance. We show that the dragon-king impact and the policy surrender reduce the optimal guaranteed rate of the life insurance policies and policyholder protection. The stringent regulatory cap of the cap-and-trade mechanism decreases the insurer's profits and hurts policyholders. Green technology employed by the high‑carbon-emission borrowing firm reduces the insurer's profits; however, it helps protect policyholders, contributing to insurance stability. One implication is that the government might improve environmental sustainability directly through the borrowing-firm production rather than from the fund-providing perspective.

Keywords: Dragon king; Cap-and-trade mechanism; Green technology; Insurer green finance (search for similar items in EconPapers)
JEL-codes: Q54 Q56 Q58 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:117:y:2023:i:c:s0140988322006193

DOI: 10.1016/j.eneco.2022.106490

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