 Sustainable finance and climate change: Wasteful but a political commitment device?Clemens Fuest and Volker Meier Journal of Environmental Economics and Management, 2023, vol. 118, issue C Abstract: Promoting investment in low carbon “clean” sectors has gained popularity over the last years under the heading of sustainable finance, at the same time raising concerns about adverse welfare effects of such policies. We analyze the political economy of subsidizing investment in “clean” industries in a stylized two-sector small open economy model with irreversible investment and reelection risks. We show that sustainable finance has a welfare cost if more targeted climate policy instruments are available. However, sustainable finance may be used by incumbent governments as an instrument to influence environmental policy decisions of future governments, which may have different preferences. Our model also offers an explanation for the political polarization about sustainable finance and climate policy currently observed in the United States. Keywords: Climate change; Global externalities; Sustainable finance; Small open economy; Political economy (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:118:y:2023:i:c:s009506962300013x DOI: 10.1016/j.jeem.2023.102795 Access Statistics for this article Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates More articles in Journal of Environmental Economics and Management from Elsevier |
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