The Carbon Bubble: Climate Policy in a Fire-sale Model of Deleveraging

David Comerford, Alessandro Spiganti

Research output: Working paper

77 Citations (Scopus)
56 Downloads (Pure)


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 first 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 fire-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.
Original languageEnglish
Place of PublicationGlasgow
PublisherUniversity of Strathclyde
Number of pages47
Publication statusPublished - 17 Nov 2017


  • Carbon Bubble
  • fire-sale
  • deleveraging
  • resource substitution
  • 2 degree C target


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