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Pollution permits and financing costs

In: Combating Climate Change: A CEPR Collection

Author

Listed:
  • Antoniou, Fabio
  • Delis, Manthos
  • Ongena, Steven
  • Tsoumas, Christos

Abstract

Effective environmental policy should consider how the financiers of polluting firms behave. We study phase III of the EU Emission Trading System. Loan spreads for cap‐and‐trade participants are a function of compliance costs, permit market features, and firms’ strategic actions. In contrast with the program intentions, we find that loan spreads fall by approximately 25%. We show that this decrease is almost entirely driven by low permit prices, the firms’ proactiveness to store permits, and imperfect foresight of market conditions in phase III. The drop in spreads cannot be explained by the decline in energy prices and/or other confounding factors.
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Suggested Citation

  • Antoniou, Fabio & Delis, Manthos & Ongena, Steven & Tsoumas, Christos, 2021. "Pollution permits and financing costs," CEPR Press Book Chapters, in: Weder di Mauro, Beatrice (ed.), Combating Climate Change: A CEPR Collection, edition 1, volume 1, chapter 14, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ebchap:p347-14
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    Cited by:

    1. is not listed on IDEAS
    2. Brunella Bruno & Sara Lombini, 2023. "Climate transition risk and bank lending," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 46(S1), pages 59-106, December.
    3. Neophytos Lambertides & Dimitris Tsouknidis, 2024. "Climate regulation costs and firms’ distress risk," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 33(1), pages 3-30, February.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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