Reducing Carbon using Regulatory and Financial Market Tools
This paper studies the conditions under which debt securities that make the cost of debt contingent on the issuer's carbon emissions, similar to sustainability-linked loans and bonds, can be equivalent to a carbon tax. The paper proposes a model in which standard and environmentally-oriented agents can adopt polluting and nonpolluting technologies, with the latter being less profitable than the former. A carbon tax can correct the laissez-faire economy in which the polluting technology is adopted by standard agents, but requires sufficient political support. Carbon-contingent securities provide an alternative price incentive for standard agents to adopt the nonpolluting technology, but require sufficient funds to fully substitute the regulatory tool. Absent political support for the tax, carbon-contingent securities can only improve welfare, but the same is not true when some support for a carbon tax exists. Understanding the conditions under which the regulatory and capital market tools are substitutes or complements within one economy is an important steppingstone in thinking about carbon pricing globally. It sheds light, for instance, on how developed economies can deploy finance to curb carbon emissions in developing economies where support for a carbon tax does not exist.
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Format: | Working Paper biblioteca |
Language: | English English |
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World Bank, Washington, DC
2023-08-08
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Subjects: | CARBON EMISSIONS, CARBON TAX, SUSTAINABILITY-LINKED DEBT, VOTER WELFARE, CLIMATE SHOCKS AND CO2, GLOBAL CARBON EMISSIONS, CARBON PRICING, |
Online Access: | http://documents.worldbank.org/curated/en/099333108072319011/IDU17d6c0fe715c1e1474d1ba871cf444578de7d https://openknowledge.worldbank.org/handle/10986/40161 |
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dig-okr-10986401612024-03-11T19:24:01Z Reducing Carbon using Regulatory and Financial Market Tools Allen, Franklin Barbalau, Adelina Zeni, Federica CARBON EMISSIONS CARBON TAX SUSTAINABILITY-LINKED DEBT VOTER WELFARE CLIMATE SHOCKS AND CO2 GLOBAL CARBON EMISSIONS CARBON PRICING This paper studies the conditions under which debt securities that make the cost of debt contingent on the issuer's carbon emissions, similar to sustainability-linked loans and bonds, can be equivalent to a carbon tax. The paper proposes a model in which standard and environmentally-oriented agents can adopt polluting and nonpolluting technologies, with the latter being less profitable than the former. A carbon tax can correct the laissez-faire economy in which the polluting technology is adopted by standard agents, but requires sufficient political support. Carbon-contingent securities provide an alternative price incentive for standard agents to adopt the nonpolluting technology, but require sufficient funds to fully substitute the regulatory tool. Absent political support for the tax, carbon-contingent securities can only improve welfare, but the same is not true when some support for a carbon tax exists. Understanding the conditions under which the regulatory and capital market tools are substitutes or complements within one economy is an important steppingstone in thinking about carbon pricing globally. It sheds light, for instance, on how developed economies can deploy finance to curb carbon emissions in developing economies where support for a carbon tax does not exist. 2023-08-08T18:49:08Z 2023-08-08T18:49:08Z 2023-08-08 Working Paper http://documents.worldbank.org/curated/en/099333108072319011/IDU17d6c0fe715c1e1474d1ba871cf444578de7d https://openknowledge.worldbank.org/handle/10986/40161 English en Policy Research Working Papers; 10539 CC BY 3.0 IGO https://creativecommons.org/licenses/by/3.0/igo/ World Bank application/pdf text/plain World Bank, Washington, DC |
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CARBON EMISSIONS CARBON TAX SUSTAINABILITY-LINKED DEBT VOTER WELFARE CLIMATE SHOCKS AND CO2 GLOBAL CARBON EMISSIONS CARBON PRICING CARBON EMISSIONS CARBON TAX SUSTAINABILITY-LINKED DEBT VOTER WELFARE CLIMATE SHOCKS AND CO2 GLOBAL CARBON EMISSIONS CARBON PRICING |
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CARBON EMISSIONS CARBON TAX SUSTAINABILITY-LINKED DEBT VOTER WELFARE CLIMATE SHOCKS AND CO2 GLOBAL CARBON EMISSIONS CARBON PRICING CARBON EMISSIONS CARBON TAX SUSTAINABILITY-LINKED DEBT VOTER WELFARE CLIMATE SHOCKS AND CO2 GLOBAL CARBON EMISSIONS CARBON PRICING Allen, Franklin Barbalau, Adelina Zeni, Federica Reducing Carbon using Regulatory and Financial Market Tools |
description |
This paper studies the conditions
under which debt securities that make the cost of debt
contingent on the issuer's carbon emissions, similar to
sustainability-linked loans and bonds, can be equivalent to
a carbon tax. The paper proposes a model in which standard
and environmentally-oriented agents can adopt polluting and
nonpolluting technologies, with the latter being less
profitable than the former. A carbon tax can correct the
laissez-faire economy in which the polluting technology is
adopted by standard agents, but requires sufficient
political support. Carbon-contingent securities provide an
alternative price incentive for standard agents to adopt the
nonpolluting technology, but require sufficient funds to
fully substitute the regulatory tool. Absent political
support for the tax, carbon-contingent securities can only
improve welfare, but the same is not true when some support
for a carbon tax exists. Understanding the conditions under
which the regulatory and capital market tools are
substitutes or complements within one economy is an
important steppingstone in thinking about carbon pricing
globally. It sheds light, for instance, on how developed
economies can deploy finance to curb carbon emissions in
developing economies where support for a carbon tax does not exist. |
format |
Working Paper |
topic_facet |
CARBON EMISSIONS CARBON TAX SUSTAINABILITY-LINKED DEBT VOTER WELFARE CLIMATE SHOCKS AND CO2 GLOBAL CARBON EMISSIONS CARBON PRICING |
author |
Allen, Franklin Barbalau, Adelina Zeni, Federica |
author_facet |
Allen, Franklin Barbalau, Adelina Zeni, Federica |
author_sort |
Allen, Franklin |
title |
Reducing Carbon using Regulatory and Financial Market Tools |
title_short |
Reducing Carbon using Regulatory and Financial Market Tools |
title_full |
Reducing Carbon using Regulatory and Financial Market Tools |
title_fullStr |
Reducing Carbon using Regulatory and Financial Market Tools |
title_full_unstemmed |
Reducing Carbon using Regulatory and Financial Market Tools |
title_sort |
reducing carbon using regulatory and financial market tools |
publisher |
World Bank, Washington, DC |
publishDate |
2023-08-08 |
url |
http://documents.worldbank.org/curated/en/099333108072319011/IDU17d6c0fe715c1e1474d1ba871cf444578de7d https://openknowledge.worldbank.org/handle/10986/40161 |
work_keys_str_mv |
AT allenfranklin reducingcarbonusingregulatoryandfinancialmarkettools AT barbalauadelina reducingcarbonusingregulatoryandfinancialmarkettools AT zenifederica reducingcarbonusingregulatoryandfinancialmarkettools |
_version_ |
1794797152411582464 |