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

Policy Briefs

Illuminating Current Debates on Climate through Academic Insight: The Policy Brief Series

Drafted by economists who have shared their latest research in our Young Scholars’ webinar series, the Policy Briefs analyze key debates related to addressing climate change. The authors apply their expertise to elucidate the intricacies of reducing greenhouse gas emissions (“mitigation”) and adapting to current and expected climate impacts. By contextualizing recent scientific findings within policy conversations, the series illuminates evidence-based pathways for climate action. Both timely and thoughtful, the Policy Briefs aim to elevate discussions beyond rhetoric to the substantive domain of academic research.

Climate change can pose risks to banks through the transition to a low-carbon economy. Hyeyoon Jung (New York Federal Reserve Bank) and her co-authors João A.C. Santos, and Lee Seltzer in their new paper investigate the impact of climate transition policies on U.S. banks' credit risk. Their results are surprising.
Olivier Darmouni (Columbia Business School) and Yuqi Zhang (Columbia Business School) examine who owns brown coal power plants, the single largest source of carbon emissions globally. They conduct a new study that shows while ownership by stock market investors is on the decline, private and especially state investors have grown significantly, slowing down the phase-out of fossil fuels.
Parinitha Sastry (Columbia Business School) discusses her new research with Emil Verner (MIT), and David Marques-Ibanez (ECB) on how efficient banks' voluntary net zero commitments are for reducing financed emissions, whether through divestment or engagement.
Incomplete markets and uncorrected environmental externalities result in the under-provision of low-carbon technologies. In her paper “Bringing breakthrough technologies to market: solar power and feed-in tariffs” , Sugandha Srivastav (University of Oxford) examines whether the United Kingdom’s renewable energy feed-in-tariff (FiT), which is a risk-reduction and price instrument, helped bring utility-scale solar energy to market.
Jans Starmans (Stockholm School of Economics) explores how socially responsible investors can have an impact in a timely manner. He examines whether firm owners with high negative environmental externalities are incentivized to reduce these externalities proactively if they anticipate their firm to be bought by socially responsible investors.
Mayank Kumar (University of Michigan) argues in his paper "Getting Dirty Before You Get Clean: Institutional Investment in Fossil Fuels and the Green Transition" that private investment in fossil fuel companies does not adversely affect climate outcomes but rather it can support the green transition by financing clean technologies. Specifically, the paper studies the effects of PE investment in fossil fuel on solar energy technologies.
Charles A. Taylor (Harvard Business School) and Marco Tabellini (Harvard Business School) introduce the concept of “climate matching” as a driver of migration and establish several new results. They show that climate strongly predicts the spatial distribution of immigrants in the US, as movers select destinations with climates similar to their place of origin.
Adelina Barbalau (University of Alberta) shows how carbon-contingent securities can provide carbon reduction incentives that are equivalent to a carbon tax, and can thus offer a decentralized alternative to regulation which is not subject to political constraints.
In this brief, we ask whether the implementation of national climate policies may spur a global race to protectionism. Consumer or production subsidies and border carbon adjustments may have positive mitigation effects but can also generate trade distortions and give national industries a competitive advantage against foreign firms.
Climate stress tests were built to assess climate systemic risk in the financial system. They demand resources from supervisors and banks alike, but are proving useful to inform macroprudential policies.
Climate change has a destabilizing effect on financial markets. If market actors become overexposed to climate-sensitive assets, the ensuing market failure provides justification for central bank intervention to prevent cascading financial effects.
To secure price stability and fulfill their primary mandate, policymakers should act promptly: interest rate management, expectation anchoring, financial stabilization, cooperation with fiscal authorities are just some of the tools at their disposal.

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