The E-axes Forum on Climate Change, Macroeconomics, and Finance

Adelina Barbalau

“Reducing Carbon using Regulatory and Financial Market Tools”

Young Scholars' Webinar on Climate Finance and Economics

In this paper, we study the conditions under which debt securities that make the cost of debt contingent on the issuer’s carbon emissions, similar to sustainability-linked loans and bonds, can be equivalent to a carbon tax. The study proposes a model in which standard and environmentally oriented agents can adopt polluting and nonpolluting technologies, with the latter being less profitable than the former. A carbon tax can correct the laissez-faire economy in which polluting technology is adopted by standard agents but requires sufficient political support. Carbon-contingent securities provide an alternative price incentive for standard agents to adopt the non-polluting technology but require sufficient funds to fully substitute the regulatory tool. Absent political support for the tax, carbon-contingent securities can only improve welfare, but the same is not true when some support for a carbon tax exists. Understanding the conditions under which the regulatory and capital market tools are substitutes or complement within one economy is an important stepping stone in thinking about carbon pricing globally. It sheds light, for instance, on how developed economies can deploy finance to curb carbon emissions in developing economies where support for a carbon tax does not exist.


Alissa M. Kleinnijenhuis
Imperial College Business School

Organizing Committee

Michael Barnett, Arizona State University
Alissa M. Kleinnijenhuis, Imperial College Business School
Ishita Sen, Harvard Business School
Diego Känzig, Northwestern University

Adelina Barbalau

Adelina Barbalau is an Assistant Professor of Finance at the Alberta School of Business, University of Alberta. Her work in the field of climate finance has been receiving recognition through awards such as the Best Paper Award at EFA 2023 and the Best Paper Award for Impactful Research at GRASFI 2022. Adelina’s research interests are in the areas of climate finance, corporate finance, and information economics.

Paper and slides

Reducing Carbon using Regulatory and Financial Market Tools (Paper)

Reducing Carbon using Regulatory and Financial Market Tools (Slide)



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