Promoting energy conservation in manufacturing through sustainable insurance

Shi Chen, Dong Chen and Jyh-Horng Lin

Renewable and Sustainable Energy Reviews, 2024, vol. 204, issue C

Abstract: Motivated by the imperative of advancing environmental sustainability through green financing, this study delves into the transformative impact of technological advancements. Employing a novel, capped call-option model, this study assesses the interplay between financial technology for sustainable insurance and production technology for energy saving. This capped option encompasses lending-borrowing elements, including the financial and production technologies and carbon-allowance transactions within the cap-and-trade mechanism dedicated to environmental improvement. The investigation underscores the far-reaching effects of stringent regulatory caps, revealing substantial implications for manufacturing entities' equity value and risk. Such regulations may take a toll on borrowing manufacturers, deterring their engagement in energy-saving initiatives for cleaner production. Furthermore, this study sheds light on the dynamics of energy-saving practices, emphasizing that both technology-intensive production and financial technologies contribute to manufacturers' heightened equity risk. Interestingly, sustainable insurance initiatives, while well-intentioned, might inadvertently hinder progress in energy saving. Despite both fund providers' and borrowing manufacturers’ engagement in technology-intensive solutions for environmental improvement, the findings suggest that prioritizing progress in technology-intensive production technology for energy saving holds greater promise for advancing cleaner production. This potential replacement is especially significant for low-carbon emitters compared to their high-carbon counterparts, highlighting the nuanced dynamics at play in fostering a sustainable and energy-efficient future.

Keywords: Production technology; Cap-and-trade; Sustainable insurance; Financial technology; Capped call option (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1016/j.rser.2024.114817

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