Discussion Paper Details

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Title: Carbon Taxes and the Geography of Fossil Lending

Author(s): Luc Laeven and Alexander Popov

Publication Date: November 2021

Keyword(s): Carbon taxes, climate change and Cross-border lending

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Laeven, L and Popov, A. 2021. 'Carbon Taxes and the Geography of Fossil Lending'. London, Centre for Economic Policy Research.