Economics at your fingertips  

The Carbon Bubble: climate policy in a fire‐sale model of deleveraging

David Comerford and Alessandro Spiganti

Scandinavian Journal of Economics, 2023, vol. 125, issue 3, 655-687

Abstract: Credible implementation of climate change policy, consistent with the 2 °C limit, requires a large proportion of current fossil‐fuel reserves to remain unused. This issue, named the Carbon Bubble, is usually presented as a required asset write‐off, with implications for investors. We embed the Carbon Bubble in a macroeconomic model exhibiting a financial accelerator: if investors are leveraged, then the Carbon Bubble might precipitate a fire‐sale of assets across the economy, and generate a large and persistent fall in output and investment, impairing the economy's ability to invest in the zero carbon assets it needs to produce output in the post‐climate‐transition world. We find a role for macroeconomic policy protecting investors' balance sheets in mitigating the macroeconomic effects of the Carbon Bubble, and enhancing welfare.

Date: 2023
References: Add references at CitEc

Downloads: (external link)

Related works:
Working Paper: The Carbon Bubble: Climate Policy in a Fire-sale Model of Deleveraging (2017) Downloads
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:

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0347-0520

Access Statistics for this article

Scandinavian Journal of Economics is currently edited by Richard Friberg, Matti Liski and Kjetil Storesletten

More articles in Scandinavian Journal of Economics from Wiley Blackwell
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().

Page updated 2024-07-01
Handle: RePEc:bla:scandj:v:125:y:2023:i:3:p:655-687