Working Paper: CEPR ID: DP16745
Authors: Luc Laeven; Alexander Popov
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.
Keywords: carbon taxes; cross-border lending; climate change
JEL Codes: G15; G21; H23; Q5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Carbon tax introduction (H23) | Domestic fossil lending decrease (G51) |
| Carbon tax introduction (H23) | Foreign fossil lending increase (F34) |
| Domestic fossil lending decrease (G51) | Banks with higher prior fossil lending exposures reallocating lending abroad (F65) |
| Carbon tax introduction (H23) | Reallocation effect to other carbon-intensive sectors (H23) |