Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278576 
Year of Publication: 
2023
Series/Report no.: 
ECB Working Paper No. 2812
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We analyze jointly optimal carbon pricing and leverage regulation in a model with financial constraints and endogenous climate-related transition and physical risks. The socially optimal emissions tax is below the Pigouvian benchmark (equal to the direct social cost of emissions) when emissions taxes amplify financial constraints, or above this benchmark if physical climate risks have a substantial impact on collateral values. Additionally introducing leverage regulation can be welfare-improving only if tax rebates are not fully pledgeable. A cap-and-trade system or abatement subsidies may dominate carbon taxes because they can be designed to have a less adverse effect on financial constraints.
Subjects: 
Pigouvian tax
carbon pricing
financial constraints
climate risk
financial regulation
JEL: 
D62
G28
G32
G38
H23
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-6075-5
Document Type: 
Working Paper

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