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  Climate finance intermediation: interest spread effects in a climate policy model

Lessmann, K., Kalkuhl, M. (2024): Climate finance intermediation: interest spread effects in a climate policy model. - Journal of the Association of Environmental and Resource Economists, 11, 1, 213-251.
https://doi.org/10.1086/725920

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 Creators:
Lessmann, Kai1, Author           
Kalkuhl, Matthias1, Author           
Affiliations:
1Potsdam Institute for Climate Impact Research, ou_persistent13              

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 Abstract: Interest rates are central determinants of saving and investment decisions. Costly financial intermediation distorts these price signals by creating a spread between deposit and loan rates.
This study investigates how bank spreads affect climate policy in its ambition to redirect capital. We identify various channels through which interest spreads affect carbon emissions in
a dynamic general equilibrium model. Interest rate spreads increase abatement costs due to
the higher relative price for capital-intensive carbon-free energy but they also tend to reduce
emissions due to lower overall economic growth. For the global average interest rate spread
of 5.1pp, global warming increases by 0.2°C compared to the frictionless economy. For a
given temperature target to be achieved, interest rate spreads necessitate substantially higher
carbon taxes. When spreads arise from imperfect competition in the intermediation sector,
the associated welfare costs can be reduced by clean energy subsidies or even eliminated by
economy-wide investment subsidies.

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Language(s): eng - English
 Dates: 2023-04-072023-05-162024-01-01
 Publication Status: Finally published
 Pages: 39
 Publishing info: -
 Table of Contents: -
 Rev. Type: Peer
 Identifiers: DOI: 10.1086/725920
Organisational keyword: RD3 - Transformation Pathways
PIKDOMAIN: RD3 - Transformation Pathways
Organisational keyword: FutureLab - Public Economics and Climate Finance
MDB-ID: No MDB - stored outside PIK (see DOI)
Model / method: PRIDE
Regional keyword: Global
Research topic keyword: Carbon Pricing
Research topic keyword: Climate impacts
Research topic keyword: Economics
OATYPE: Green Open Access
 Degree: -

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Title: Journal of the Association of Environmental and Resource Economists
Source Genre: Journal, SSCI, Scopus
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Pages: - Volume / Issue: 11 (1) Sequence Number: - Start / End Page: 213 - 251 Identifier: CoNE: https://publications.pik-potsdam.de/cone/journals/resource/2333-5963
Publisher: University of Chicago Press