Leverage and the Low-Carbon Transition in Europe

Margherita Giuzio, Sujit Kapadia, Dilyara Salakhova and Katia Vozian

Working papers from Banque de France

Abstract: Using data on verified carbon emissions from the EU emissions trading system, this paper examines the relationship between leverage and transition performance for highly polluting and mostly non-listed ETS firms over 2013-2019 that are responsible for approximately 20% of total EU emissions. Panel regression analysis indicates that, up to a certain point, firms with higher leverage have lower emissions and improved emission efficiency in subsequent years. But beyond that point, greater leverage is associated with worse transition performance. Exploiting a 2015 policy shock aiming at toughening the emissions regime in a difference-in-differences setup, we also identify a group of firms that appear too indebted to transition towards low-carbon technology.

Keywords: Low-Carbon Transition; Climate Change; Debt Finance; Leverage; Green Investment; EU ETS (search for similar items in EconPapers)
JEL-codes: C58 E58 G32 Q51 Q56 Q58 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2025
New Economics Papers: this item is included in nep-ene and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:1011

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