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

David Comerford, Alessandro Spiganti

Research output: Working paper

39 Citations (Scopus)
35 Downloads (Pure)

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 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
Pages1-46
Number of pages47
Volume17
Publication statusPublished - 17 Nov 2017

Keywords

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

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  • Cite this

    Comerford, D., & Spiganti, A. (2017). The Carbon Bubble: Climate Policy in a Fire-sale Model of Deleveraging. (14 ed.) (pp. 1-46). University of Strathclyde.