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ID:
162634
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| Summary/Abstract |
The role of development finance institutions in low‐income and emerging countries is fundamental to provide long‐term capital for investments in climate mitigation and adaptation. Nevertheless, development finance institutions still lack sound and transparent metrics to assess their projects' exposure to climate risks and their impact on global climate action. To attempt to fill this gap, we develop a novel climate stress‐test methodology for portfolios of loans to energy infrastructure projects. We apply the methodology to the portfolios of overseas energy projects of two main Chinese policy banks. We estimate their exposure to economic and financial shocks that would result in government inability to introduce timely 2°C‐aligned climate policies and from investors' inability to adapt their business to the changing climate and policy environment. We find that the negative shocks are mostly concentrated on coal and oil projects and vary across regions from 4.2 to 22 percent of the total loan value. Given the current leverage of Chinese policy banks, these losses could induce severe financial distress, with implications on macroeconomic and financial stability.
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| 2 |
ID:
162910
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| Summary/Abstract |
There is growing consensus on the fact that fossil fuel subsidies provided by governments in high-income countries represent a misalignment on emissions’ reduction with the global climate agenda. In addition, a discussion emerged on the negative socio-economic and environmental externalities associated with fossil fuel subsidies. Nevertheless, pathways for phasing out fossil fuel subsidies in high income countries and their implications on the low-carbon transition have not yet been assessed. With the aim to narrow this knowledge gap, we extend the EIRIN Stock-Flow Consistent behavioral model to study the implications on sustainable development of the gradual phasing out of fossil fuels subsidies, whose revenues could be used by the government to subsidize energy investments in green capital (e.g. solar panels), either via fiscal policies or green bonds. We assess the effects on green growth, employment, credit and bonds market, as well as the distributive effects across heterogeneous households and sectors. A smooth phasing out of fossil fuels subsidies contributes to improve macroeconomic performance, to decrease inequality and helps the government to find fiscal space to support stable renewable energy policies. Renewable energy subsidies contribute to foster the low-carbon transition but could imply distributive effects, depending on the way in which they are implemented.
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