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 (https://doi.org/10.1111/sjoe.12519)

[thumbnail of Comerford-Spiganti-SJE-2022-climate-policy-in-a-fire-sale-model-of-deleveraging] Text. Filename: Comerford_Spiganti_SJE_2022_climate_policy_in_a_fire_sale_model_of_deleveraging.pdf
Accepted Author Manuscript
Restricted to Repository staff only until 7 July 2024.
License: Strathprints license 1.0
Download (1MB) | Request a copy

Abstract

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.

ORCID iDs

Comerford, David ORCID logoORCID: https://orcid.org/0000-0002-5541-736X and Spiganti, Alessandro;
CORE (COnnecting REpositories)