Abstract
This chapter investigates the implications of the policy changes triggered by the Global Financial Crisis on the transition to a low-carbon society. The immediate effects have mostly been negative: national governments have retracted from public spending and fiscal support to clean technologies; new macroprudential regulation has discouraged banks from lending to low-carbon projects; monetary policies have perpetuated the high-carbon lock-in of the economic system. However, the transformed macroeconomic and institutional setting, together with the increased awareness of the links between financial dynamics and natural resources, has also created new space of opportunity for low-carbon investment and financing. New concepts and policy proposals have emerged, including the ‘green growth’ narrative, the idea of aligning macroprudential policy to climate objectives and the suggestion to use unconventional ‘Quantitative Easing’ monetary policies to support low-carbon investment.
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Notes
- 1.
We will use the terms ‘green’, ‘sustainable’, ‘low-carbon’ and ‘climate-friendly’ in their broad sense and employ them as synonyms to refer to investment in all sectors involved in producing goods and services with a low environmental impact, or technologies that help to reduce the environmental impact of other sectors. A non-exhaustive list includes generation of electricity from renewable sources, energy efficiency in buildings, electric vehicles and low-carbon transportation, and waste and water management. While keeping a broad perspective, we will mainly focus on climate change, climate mitigation policies and renewable energy production.
- 2.
Asset finance refers to ‘all money invested in renewable energy generation projects’; solar project with less than 1 MW are estimated separately and referred to as small distributed capacity (FS-UNEP and BNEF 2016, p. 10).
- 3.
FS-UNEP and BNEF (2016) data include investments in solar, wind, biomass and waste-to-energy, hydropower projects of less than 50 MW, biofuels, geothermal, wave and tidal energies.
- 4.
These include renewable energy, energy efficiency, sustainable transport, water and waste management, climate adaptation projects and others (CPI 2015).
- 5.
Stock prices of a large number of companies operating in fossil fuel sectors have indeed been declining in recent years. However, this trend seems to have been driven mainly by the large drop in fossil fuel prices since 2014, which in turn has been determined by a mix of stagnating demand, abundant supply and geopolitical reasons (Baumeister and Kilian 2016).
- 6.
The balanced budget principle was introduced in Article 81 of the Italian Constitution by Constitutional Law 2012/1, and in Article 109 of the Basic Law of Germany in 2009.
- 7.
Central bank reserves are accounts that commercial banks hold at the central bank and use to settle interbank transactions.
- 8.
National development banks include, to cite some of the largest, the China Development Bank (CDB), the German Kreditanstalt fur Wiederaufbau (KfW) and the Brazilian Banco Nacional do Desenvolvimento (BNDES). MDBs include the European Investment Bank (EIB), the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), the Asian Development Bank (ADB) and others.
- 9.
The complete list of eligible supranational entities can be found at this link: https://www.ecb.europa.eu/mopo/implement/omt/html/pspp.en.html.
- 10.
There are two types of capital base in MDBs: (i) paid-in capital (plus reserves and retained earnings) and (ii) ‘callable’ capital, guaranteed by governments in times of crisis. The share of paid-in capital has been gradually shrinking in all MDBs (Humphrey 2015); governments prefer to offer callable capital, as it doesn’t involve any actual budgetary disbursement.
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Campiglio, E., Godin, A., Kemp-Benedict, E., Matikainen, S. (2017). The Tightening Links Between Financial Systems and the Low-Carbon Transition. In: Arestis, P., Sawyer, M. (eds) Economic Policies since the Global Financial Crisis. International Papers in Political Economy. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-60459-6_8
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