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Carbon Taxes and the Geography of Fossil Lending

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  • Laeven, Luc
  • Popov, Alexander

Abstract

Using data on syndicated loans, we find that the introduction of a carbon tax is associated with an increase in domestic banks' lending to coal, oil, and gas companies in foreign countries. This effect is particularly pronounced for banks with large prior fossil-lending exposures, while bank capital and profitability do not play a role. In addition, banks reallocate a relatively larger share of their fossil loan portfolio to countries without a carbon tax. Our findings speak to the importance of a global carbon tax to prevent the reallocation of carbon emissions across national borders via financial markets.

Suggested Citation

  • Laeven, Luc & Popov, Alexander, 2021. "Carbon Taxes and the Geography of Fossil Lending," CEPR Discussion Papers 16745, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16745
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    3. Elias Demetriades & Panagiotis Politsidis, 2025. "Bank lending to fossil fuel firms," Post-Print hal-04804492, HAL.
    4. Hyeyoon Jung & João A. C. Santos & Lee Seltzer, 2023. "U.S. Banks’ Exposures to Climate Transition Risks," Staff Reports 1058, Federal Reserve Bank of New York.
    5. Carattini, Stefano & Kim, Giseong & Melkadze, Givi & Pommeret, Aude, 2024. "Carbon taxes and tariffs, financial frictions, and international spillovers," European Economic Review, Elsevier, vol. 170(C).
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    9. Giannetti, Mariassunta & Jasova, Martina & Loumioti, Maria & Mendicino, Caterina, 2023. "“Glossy green” banks: the disconnect between environmental disclosures and lending activities," Working Paper Series 2882, European Central Bank.
    10. Zhiyuan Li & Bing Lu & Sili Zhou, 2024. "Production Leakage: Evidence from Uncoordinated Environmental Policies," Working Papers 202413, University of Macau, Faculty of Business Administration.
    11. Anna-Maria Isabel Maurer, 2025. "The Disconnect between Syndicated Lending Activities and ESG Determinants in Banks’ Executive Compensation," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 15(3), pages 1-2.
    12. Altavilla, Carlo & Boucinha, Miguel & Pagano, Marco & Polo, Andrea, 2023. "Climate Risk, Bank Lending and Monetary Policy," CEPR Discussion Papers 18541, C.E.P.R. Discussion Papers.
    13. Garcia-Villegas, Salomon & Martorell, Enric, 2024. "Climate transition risk and the role of bank capital requirements," Economic Modelling, Elsevier, vol. 135(C).
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    17. Schreiner, Lena & Beyer, Andreas, 2025. "Impacts of ESG banking regulation on financing new sustainable technologies," Working Paper Series 3089, European Central Bank.
    18. Nickel, Christiane & Kilponen, Juha & Moral-Benito, Enrique & Koester, Gerrit & Ciccarelli, Matteo & Enders, Almira & Holton, Sarah & Landau, Bettina & Venditti, Fabrizio & Bobeica, Elena & Brand, Cla, 2025. "A strategic view on the economic and inflation environment in the euro area," Occasional Paper Series 371, European Central Bank.
    19. Sachdeva, Kunal & Silva, André F. & Slutzky, Pablo & Xu, Billy Y., 2025. "Defunding controversial industries: Can targeted credit rationing choke firms?," Journal of Financial Economics, Elsevier, vol. 172(C).
    20. Matzner, Anna & Steininger, Lea, 2024. "Firms’ heterogeneous (and unintended) investment response to carbon price increases," Working Paper Series 2958, European Central Bank.
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    Keywords

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    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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