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- Title
Banking on Carbon: Corporate Lending and Cap-and-Trade Policy.
- Authors
Ivanov, Ivan T; Kruttli, Mathias S; Watugala, Sumudu W
- Abstract
We estimate the effect of carbon pricing policy on bank credit to greenhouse-gas-emitting firms. Our analyses exploit the geographic restrictions inherent in California's cap-and-trade bill and a discontinuity in the embedded free permit threshold of the federal Waxman-Markey cap-and-trade bill. Affected high emission firms face shorter loan maturities, lower access to permanent forms of bank financing, higher interest rates, and higher participation of shadow banks in their lending syndicates. These effects are concentrated among private firms, while credit terms of public firms are largely unaffected. Overall, we show that banks respond quickly to realizations of transition risk.
- Subjects
CALIFORNIA; BUSINESS enterprises; BANK loans; CARBON pricing; EMISSIONS trading
- Publication
Review of Financial Studies, 2024, Vol 37, Issue 5, p1640
- ISSN
0893-9454
- Publication type
Article
- DOI
10.1093/rfs/hhad085