Being Stranded on the Carbon Bubble? Climate Policy Risk and the Pricing of Bank Loans

Steven Ongena, Winta Beyene, Manthos Delis () and Kathrin de Greiff

No 12928, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: What is the role market- and bank-based debt plays in the climate transition process? We present evidence that bond markets price the risk that reserves held by fossil fuel firms strand, while banks in the syndicated loan market do not. Consequently, fossil fuel firms increasingly rely less on bonds and more on loans. We interpret the within-firm bond-to-loan substitution in stranding risk as a contraction in the supply of bond credit versus bank credit. Within the banking sector, big banks provide cheaper and more financing to fossil fuel firms, possibly giving rise to a novel “too-big-to-strand†concern for banking regulators.

Keywords: Environmental policy; Climate policy risk; Loan maturity; Carbon bubble; Fossil fuel firms; Stranded assets; Loan pricing (search for similar items in EconPapers)
JEL-codes: G2 Q3 Q50 (search for similar items in EconPapers)
Date: 2018-05
New Economics Papers: this item is included in nep-ene and nep-env
References: View complete reference list from CitEc
Citations: View citations in EconPapers (53)

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Working Paper: Being Stranded on the Carbon Bubble? Climate Policy Risk and the Pricing of Bank Loans (2018)
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