Carbon Pricing and Household Finance: How Banks Price Transition Risk in Auto Loans

Philip Fliegel, Achim Hagen, Nicolas Koch and Nolan Ritter

No 12288, CESifo Working Paper Series from CESifo

Abstract: We study the impact of carbon pricing on household finance using European microdata on loans for internal combustion engine vehicles. Exploiting cross-country variation in the same car models with a difference-in-differences design, we find that banks respond to Germany's carbon price announcement by raising interest rates by 0.5 percentage points, with larger increases for loans on fuel-intensive vehicles and for longer maturities. Banks also shorten loan maturity, reduce amounts, and shift to linear repayments, while households choose more fuel-efficient new cars. Captive banks respond more strongly than commercial banks. Collateral and default risk channels jointly explain these adjustments, highlighting household finance as a key transmission channel of climate policy.

Keywords: credit pricing; climate policies; climate transition risk (search for similar items in EconPapers)
JEL-codes: G21 G50 G51 Q54 Q58 (search for similar items in EconPapers)
Date: 2025
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