Showing posts with label Energy & Climate Change.   Show all posts

Finance and decarbonisation: why equity markets do it better

From the European Central Bank:

This article provides evidence that economies receiving more funding from stock markets than credit markets generate less carbon. Increasing the equity financing share to one-half globally would reduce aggregate per capita carbon emissions by about one-quarter of the Paris Agreement commitment. Our findings call for supporting equity-based initiatives rather than policies aimed at decarbonising the European economy through the banking sector.

Financial markets and global warming

The 2015 Paris Climate Conference firmly put at the heart of the debate on environmental degradation a sector of the economy that may surprise some readers: finance. Accordingly, the leaders of the G20 stated their intention to fund low-carbon infrastructure and other climate solutions by scaling up so-called green finance initiatives. Key examples are the burgeoning market for green bonds, whose issuance reached USD 48 billion in the first quarter of 2019[2], and the creation of a green credit department by the largest financial institution in the world, the Industrial and Commercial Bank of China.

Somewhat paradoxically, the interest in green finance has also laid bare our limited understanding of the relationship between traditional finance and the environment. Yet it is important for us to understand that relationship, because most of the global transition to a low-carbon economy will need to be funded by the private financial sector if international climate goals are to be met on time (UNEP, 2011). Are expanding financial markets detrimental to the environment? Do they cause harm, for instance, by fuelling economic growth and the concomitant emission of pollutants? Or, do they steer economies towards sustainable growth by favouring green sectors over so-called brown ones? And is there a difference in this regard between credit markets and equity markets? Do they have the same impact on environmental degradation, or does it make economic sense to stimulate one segment of the financial system at the expense of the other?

We explore those questions in this article, which is based on a recent ECB working paper (De Haas and Popov, 2019). Here, as in the working paper, we present novel evidence that, when it comes to addressing climate change, not all financial markets are created equal. As it turns out, stock markets are superior to banks in decarbonising the economy. As we show, for a given level of economic development, financial development, and environmental protection, economies generate fewer carbon emissions per capita if they receive relatively more of their funding from stock markets than from credit markets.”

Continue reading here.

From the European Central Bank:

This article provides evidence that economies receiving more funding from stock markets than credit markets generate less carbon. Increasing the equity financing share to one-half globally would reduce aggregate per capita carbon emissions by about one-quarter of the Paris Agreement commitment. Our findings call for supporting equity-based initiatives rather than policies aimed at decarbonising the European economy through the banking sector.

Financial markets and global warming

The 2015 Paris Climate Conference firmly put at the heart of the debate on environmental degradation a sector of the economy that may surprise some readers: finance.

Read the full article…

Posted by at 9:17 AM

Labels: Energy & Climate Change

Should Monetary Policy Take Inequality and Climate Change into Account?

From a paper by Patrick Honohan (Peterson Institute for International Economics):

“Should central banks take more account of ethical distributional and environmental concerns in the design and implementation of the wider monetary policy toolkit they have been using in the past decade? Although the scope to influence a range of objectives is more limited than is often supposed, and while it is vital to not derail monetary policy from its core purposes, central bank mandates justify paying more attention to such broad issues, especially if policy choices have a significant potential impact. Carefully managed steps in this direction could actually strengthen central bank independence while making some contribution to improving the effectiveness of public policy on these matters.”

From a paper by Patrick Honohan (Peterson Institute for International Economics):

“Should central banks take more account of ethical distributional and environmental concerns in the design and implementation of the wider monetary policy toolkit they have been using in the past decade? Although the scope to influence a range of objectives is more limited than is often supposed, and while it is vital to not derail monetary policy from its core purposes,

Read the full article…

Posted by at 2:44 PM

Labels: Energy & Climate Change

Drilling Down: The Impact of Oil Price Shocks on Housing Prices

From a new paper by Valerie Grossman, Enrique Martínez-García, Luis Bernardo Torres and Yongzhi Sun:

“This paper investigates the impact of oil price shocks on house prices in the largest urban centers in Texas. We model their dynamic relationship taking into account demand- and supply-side housing fundamentals (personal disposable income per capita, long-term interest rates, and rural land prices) as well as their varying dependence on oil activity. We show the following: 1) Oil price shocks have limited pass-through to house prices—the highest pass-through is found among the most oil-dependent cities where, after 20 quarters, the cumulative response of house prices is 21 percent of the cumulative effect on oil prices. Still, among less oil-dependent urban areas, the house price response to a one standard deviation oil price shock is economically significant and comparable in magnitude to the response to a one standard deviation income shock. 2) Omitting oil prices when looking at housing markets in oil-producing areas biases empirical inferences by substantially overestimating the effect of income shocks on house prices. 3) The empirical relationship linking oil price fluctuations to house prices has remained largely stable over time, in spite of the significant changes in Texas’ oil sector with the onset of the shale revolution in the 2000s.”

 

From a new paper by Valerie Grossman, Enrique Martínez-García, Luis Bernardo Torres and Yongzhi Sun:

“This paper investigates the impact of oil price shocks on house prices in the largest urban centers in Texas. We model their dynamic relationship taking into account demand- and supply-side housing fundamentals (personal disposable income per capita, long-term interest rates, and rural land prices) as well as their varying dependence on oil activity. We show the following: 1) Oil price shocks have limited pass-through to house prices—the highest pass-through is found among the most oil-dependent cities where,

Read the full article…

Posted by at 10:18 AM

Labels: Energy & Climate Change, Global Housing Watch

Macroeconomic and Financial Policies for Climate Change Mitigation: A Review of the Literature

From an IMF working paper by Signe Krogstrup and William Oman:

“Climate change is one of the greatest challenges of this century. Mitigation requires a large-scale transition to a low-carbon economy. This paper provides an overview of the rapidly growing literature on the role of macroeconomic and financial policy tools in enabling this transition. The literature provides a menu of policy tools for mitigation. A key conclusion is that fiscal tools are first in line and central, but can and may need to be complemented by financial and monetary policy instruments. Some tools and policies raise unanswered questions about policy tool assignment and mandates, which we describe. The literature is scarce, however, on the most effective policy mix and the role of mitigation tools and goals in the overall policy framework.”

From an IMF working paper by Signe Krogstrup and William Oman:

“Climate change is one of the greatest challenges of this century. Mitigation requires a large-scale transition to a low-carbon economy. This paper provides an overview of the rapidly growing literature on the role of macroeconomic and financial policy tools in enabling this transition. The literature provides a menu of policy tools for mitigation. A key conclusion is that fiscal tools are first in line and central,

Read the full article…

Posted by at 2:17 PM

Labels: Energy & Climate Change

Good for the environment, good for business: Foreign acquisitions and energy intensity

From a VoxEU post by Arlan Brucal, Beata Javorcik, and Inessa Love:

“The link between foreign ownership and environmental performance remains a controversial issue. Data from the Indonesian manufacturing census show that plants undergoing foreign acquisitions reduce their energy intensity by about 30% two years after acquisition by multinationals. This column argues that foreign direct investment can serve as a channel for the international transfer of environmentally friendly technologies and practices, thus directly contributing not only to economic growth but also to environmental progress.

According to the 2018 report of the UN Intergovernmental Panel on Climate Change (IPCC), exceeding the global threshold of 1.5°C above the pre-industrial temperature level will mean increased risk of extreme drought, wildfires, floods, and food shortages for hundreds of millions of people. Keeping emissions below the crucial threshold would require widespread changes in energy, industry, buildings, transportation, and cities. Can multinationals be part of the solution? Can flows of foreign direct investment (FDI) help put a brake on emissions? Or would they exacerbate the already worsening global climate condition?

Environmentalists argue that highly polluting multinationals relocate to countries with weaker environmental standards to circumvent costly regulations in their home country (Hanna 2010, Millimet and Roy 2015, Cai et al. 2016). In this way, they increase pollution levels not only in host countries but also globally.

In contrast, supporters of globalisation point out that FDI has a positive effect on the natural environment because multinationals tend to use more efficient and cleaner technologies than their domestic counterparts. With the spectacular growth in FDI flows and the increasing importance of developing nations as host countries, the potential effect of FDI on the natural environment remains controversial (Kellenberg 2009, Cole et al. 2017).

In a forthcoming paper (Brucal et al. 2019), we contribute to this discussion by examining the impact of foreign acquisitions on energy consumption and CO2 emissions of acquired plants. The study is based on plant-level data from the Indonesian Manufacturing Census, covering the period 1983-2001. The data contains detailed information on plant-level use of various energy inputs (both in value and physical units) and thus can be used to calculate the expected CO2 emissions using standard conversion factors specific to each type of energy. We then compare the changes in these variables in the acquired plants and a carefully selected group of domestic plants that had not changed ownership.1

Why would we expect acquired plants to improve energy efficiency?

There are several reasons why foreign acquisitions may improve energy efficiency. First, foreign acquisitions tend to increase production volume by boosting productivity and facilitating access to foreign markets through the foreign parent’s distribution network (Arnold and Javorcik 2009). This makes investments in improving energy efficiency more worthwhile as the sales base becomes large enough to cover the fixed cost of investment.”

Continue reading here.

From a VoxEU post by Arlan Brucal, Beata Javorcik, and Inessa Love:

“The link between foreign ownership and environmental performance remains a controversial issue. Data from the Indonesian manufacturing census show that plants undergoing foreign acquisitions reduce their energy intensity by about 30% two years after acquisition by multinationals. This column argues that foreign direct investment can serve as a channel for the international transfer of environmentally friendly technologies and practices,

Read the full article…

Posted by at 9:50 AM

Labels: Energy & Climate Change

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