Too Levered for Pigou: Carbon Pricing, Financial Constraints, and Leverage Regulation

Robin Döttling and Magdalena Rola-Janicka

No ds7bx, OSF Preprints from Center for Open Science

Abstract: We analyze jointly optimal carbon pricing and financial policies under financial constraints and endogenous climate-related transition and physical risks. The socially optimal emissions tax may be above or below a Pigouvian benchmark, depending on whether physical climate risks have a substantial impact on collateral values. We derive necessary conditions for emissions taxes alone to implement a constrained-efficient allocation, and show a cap-and-trade system or green subsidies may dominate emissions taxes because they can be designed to have a less adverse effect on financial constraints. Additionally introducing leverage regulation can be welfare-improving if environmental policies have a direct negative effect on financial constraints. Furthermore, our analysis highlights the positive effect of carbon price hedging markets on equilibrium environmental policies.

Date: 2023-05-22
New Economics Papers: this item is included in nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://osf.io/download/64a01be1a2a2f410a0436765/

Related works:
Working Paper: Too levered for Pigou: carbon pricing, financial constraints, and leverage regulation (2023)
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: https://EconPapers.repec.org/RePEc:osf:osfxxx:ds7bx

DOI: 10.31219/osf.io/ds7bx

Access Statistics for this paper

More papers in OSF Preprints from Center for Open Science
Bibliographic data for series maintained by OSF ().