TY  - JOUR
A1  - Lessmann, Kai
A1  - Kalkuhl, Matthias
T1  - Climate finance intermediation
BT  - interest spread effects in a climate policy model
JF  - Journal of the Association of Environmental and Resource Economists
N2  - 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 5.1 percentage points, 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.
KW  - financial friction
KW  - banking
KW  - greenhouse gas mitigation
KW  - investment subsidy
Y1  - 2023
U6  - https://doi.org/10.1086/725920
SN  - 2333-5955
SN  - 2333-5963
VL  - 11
IS  - 1
SP  - 213
EP  - 251
PB  - University of Chicago Press
CY  - Chicago, IL
ER  -