Template-Type: ReDIF-Paper 1.0
Author-Name: David  Comerford
Author-Name-First: David 
Author-Name-Last: Comerford
Author-Email: david.comerford@strath.ac.uk
Author-Workplace-Name: Department of Economics, University of Strathclyde
Author-Name: Alessandro  Spiganti
Author-Name-First: Alessandro 
Author-Name-Last: Spiganti
Author-Email: allesandro.spiganti@ed.ac.uk
Author-Workplace-Name: University of Edinburgh, School of Economics
Title: The carbon bubble:  climate policy in a fire-sale model of deleveraging
Abstract: Credible implementation of climate change policy, consistent with the 2oC limit, requires a large proportion of current fossil fuel reserves to remain unused. This issue, named the Carbon Bubble, is usually presented as a required asset write-off, with implications for investors. For the rst time, we discuss its implications for macroeconomic policy and for climate policy itself. We embed the Carbon Bubble in a macroeconomic model exhibiting a financial accelerator: if investors are leveraged, the Carbon Bubble may precipitate a re-sale of assets across the economy, and generate a large and persistent fall in output and investment. We find a role for
policy in mitigating the Carbon Bubble.
Length: 47 pages
Creation-Date: 2017-11
Revision-Date: 
Publication-Status: Published
File-URL: Credible implementation of climate change policy, consistent with the 2C limit,
File-Format: Application/pdf
Number: 1714
Classification-JEL: Q43. H23
Keywords: Carbon bubble, fire-sale, deleveraging, resource substitution, 2oC target
Handle: RePEc:str:wpaper:1714