Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/311250 
Year of Publication: 
2023
Citation: 
[Journal:] Environmental and Resource Economics [ISSN:] 1573-1502 [Volume:] 86 [Issue:] 1 [Publisher:] Springer Netherlands [Place:] Dordrecht [Year:] 2023 [Pages:] 109-145
Publisher: 
Springer Netherlands, Dordrecht
Abstract: 
This paper develops a principal-agent model with adverse selection to analyse firms' decisions between an existing carbon-intensive technology and a new low-carbon technology requiring an externally funded initial investment. We find that a Pigouvian emission tax alone may result in credit rationing and under-investment in low-carbon technologies. Combining the Pigouvian tax with interest subsidies or loan guarantees resolves credit rationing and yields a first-best outcome. An emission tax set above the Pigouvian level can also resolve credit rationing and, in some cases, yields a first-best outcome. If a carbon price is (politically) not feasible, intervention on the credit market alone can promote low-carbon development. However, such a policy yields a second-best outcome. The issue of credit rationing is temporary if the risks of low-carbon technologies decline. However, there are social costs of delay if credit rationing is not addressed.
Subjects: 
Asymmetric information
Credit rationing
Emission tax
Interest rate subsidy
Loan guarantee
Low-carbon investment
JEL: 
G20
H23
H81
Q50
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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