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Carbon Pricing and Household Finance: How Banks Price Transition Risk in Auto Loans

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  • Philip Fliegel
  • Achim Hagen
  • Nicolas Koch
  • Nolan Ritter

Abstract

We study the impact of carbon pricing on household finance using European microdata on loans for internal combustion engine vehicles. Exploiting cross-country variation in the same car models with a difference-in-differences design, we find that banks respond to Germany's carbon price announcement by raising interest rates by 0.5 percentage points, with larger increases for loans on fuel-intensive vehicles and for longer maturities. Banks also shorten loan maturity, reduce amounts, and shift to linear repayments, while households choose more fuel-efficient new cars. Captive banks respond more strongly than commercial banks. Collateral and default risk channels jointly explain these adjustments, highlighting household finance as a key transmission channel of climate policy.

Suggested Citation

  • Philip Fliegel & Achim Hagen & Nicolas Koch & Nolan Ritter, 2025. "Carbon Pricing and Household Finance: How Banks Price Transition Risk in Auto Loans," CESifo Working Paper Series 12288, CESifo.
    • Handle: RePEc:ces:ceswps:_12288
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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G50 - Financial Economics - - Household Finance - - - General
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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