“Climate Bailout”: a new tool for central banks to limit the financial risk resulting from climate change

Matthias Kroll () and Kjell Kühne ()
Additional contact information
Matthias Kroll: World Future Council
Kjell Kühne: Leave it in the Ground Initiative (LINGO)

International Environmental Agreements: Politics, Law and Economics, 2024, vol. 24, issue 1, No 13, 217-232

Abstract: Abstract To achieve the climate goals of the Paris Agreement, the bulk of identified fossil fuel resources cannot be burned and have to stay in the ground. This fact leads to a situation where a significant part of the fossil fuels already recorded in company balance sheets will become stranded assets in the near future. Since 2015, central banks have identified climate change as a large risk for financial stability, stranded assets constituting a significant element of this risk. To protect the economy from this risk, central banks need novel tools. The aim of this paper is to outline a new “climate bailout” tool which would enable fossil fuel industry actors, both in the Global North and Global South to sell their potentially stranded assets to central banks (mainly from the Global North) upon committing themselves to invest the received money into new and additional renewable energy (RE). Multilateral development banks and other development finance institutions would support this process, while central banks would take a new kind of long-term, low-yield green climate asset onto their balance sheets. The newly financed RE would substitute for lost fossil fuel energy supply and stabilise related prices. We demonstrate that a climate bailout would not only be in line with the general mandates of central banks, namely maintaining price stability and preserving the stability of the financial sector, but would also provide a new tool for central banks to counter fossil fuel price shock-induced inflation (fossilflation). We show how countries both from the Global South and the Global North could benefit from the implementation of this new financial tool.

Keywords: Climate finance; Central banks; Stranded assets; Energy transition; Financial climate risk (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10784-024-09630-4 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
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:spr:ieaple:v:24:y:2024:i:1:d:10.1007_s10784-024-09630-4

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/10784

DOI: 10.1007/s10784-024-09630-4

Access Statistics for this article

International Environmental Agreements: Politics, Law and Economics is currently edited by Joyeeta Gupta

More articles in International Environmental Agreements: Politics, Law and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().