The Carbon Bubble : climate policy in a fire-sale model of deleveraging

Comerford, David and Spiganti, Alessandro (2022) The Carbon Bubble : climate policy in a fire-sale model of deleveraging. Scandinavian Journal of Economics. ISSN 0347-0520 (

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Credible implementation of climate change policy requires large fossil fuel asset write-offs. We discuss the implications of this issue, named the Carbon Bubble, for macroeconomic policy and for climate policy itself. We embed the Carbon Bubble in a macroeconomic model exhibiting a financial accelerator: if investors are leveraged, the Carbon Bubble precipitates a fire-sale as investors rush for the exits, and generate a large and persistent fall in output and investment. We investigate policies which can accompany the writing-off of these assets, like debt transfers, investment subsidies, government guarantees. We find a role for policy in mitigating the Carbon Bubble.


Comerford, David ORCID logoORCID: and Spiganti, Alessandro;