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Carbon Taxes and the Geography of Fossil Lending

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  • Laeven, Luc
  • Popov, Alexander
Abstract
Using data on syndicated loans, we find that the introduction of a carbon tax is associated with an increase in domestic banks' lending to coal, oil, and gas companies in foreign countries. This effect is particularly pronounced for banks with large prior fossil-lending exposures, while bank capital and profitability do not play a role. In addition, banks reallocate a relatively larger share of their fossil loan portfolio to countries without a carbon tax. Our findings speak to the importance of a global carbon tax to prevent the reallocation of carbon emissions across national borders via financial markets.

Suggested Citation

  • Laeven, Luc & Popov, Alexander, 2021. "Carbon Taxes and the Geography of Fossil Lending," CEPR Discussion Papers 16745, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16745
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    2. Demirgüç-Kunt, Asli & Horváth, Bálint L. & Huizinga, Harry, 2023. "Regulatory arbitrage and loan location decisions by multinational banks," Journal of International Economics, Elsevier, vol. 145(C).
    3. Giannetti, Mariassunta & Jasova, Martina & Loumioti, Maria & Mendicino, Caterina, 2023. "“Glossy green” banks: the disconnect between environmental disclosures and lending activities," Working Paper Series 2882, European Central Bank.
    4. Zhiyuan Li & Bing Lu & Sili Zhou, 2024. "Production Leakage: Evidence from Uncoordinated Environmental Policies," Working Papers 202413, University of Macau, Faculty of Business Administration.
    5. Carlo Altavilla & Marco Pagano & Miguel Boucinha & Andrea Polo, 2023. "Climate Risk, Bank Lending and Monetary Policy," CSEF Working Papers 687, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    6. Garcia-Villegas, Salomon & Martorell, Enric, 2024. "Climate transition risk and the role of bank capital requirements," Economic Modelling, Elsevier, vol. 135(C).
    7. Miquel-Flores, Ixart & Reghezza, Alessio & Buchetti, Bruno & Perdichizzi, Salvatore, 2024. "Greening the economy: how public-guaranteed loans influence firm-level resource allocation," Working Paper Series 2916, European Central Bank.
    8. Matzner, Anna & Steininger, Lea, 2024. "Firms’ heterogeneous (and unintended) investment response to carbon price increases," Working Paper Series 2958, European Central Bank.

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    More about this item

    Keywords

    Carbon taxes; Cross-border lending; Climate change;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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