Journal article

Publication year: 2023

Pages: 109-145

Journal: Environmental and Resource Economics

Volume number: 86

Issue number: 1-2

ISSN: 0924-6460

eISSN: 1573-1502

Open access status: Hybrid

DOI Link: https://doi.org/10.1007/s10640-023-00789-z

Publisher: Springer

Abstract: 
This paper develops a principal-agent model with adverse selection to analyse firms' decisions between an existing carbon-intensive technology and a new low-carbon technology requiring an externally funded initial investment. We find that a Pigouvian emission tax alone may result in credit rationing and under-investment in low-carbon technologies. Combining the Pigouvian tax with interest subsidies or loan guarantees resolves credit rationing and yields a first-best outcome. An emission tax set above the Pigouvian level can also resolve credit rationing and, in some cases, yields a first-best outcome. If a carbon price is (politically) not feasible, intervention on the credit market alone can promote low-carbon development. However, such a policy yields a second-best outcome. The issue of credit rationing is temporary if the risks of low-carbon technologies decline. However, there are social costs of delay if credit rationing is not addressed.

Harvard Citation style: Haas, C. and Kempa, K. (2023) Low-Carbon Investment and Credit Rationing, Environmental and Resource Economics, 86(1-2), pp. 109-145. https://doi.org/10.1007/s10640-023-00789-z

APA Citation style: Haas, C., & Kempa, K. (2023). Low-Carbon Investment and Credit Rationing. Environmental and Resource Economics. 86(1-2), 109-145. https://doi.org/10.1007/s10640-023-00789-z