Pollution permits and financing costs
Abstract
Abstract Effective environmental policy should consider how the financiers of polluting firms behave. We study phase III of the EU Emission Trading System. Loan spreads for cap‐and‐trade participants are a function of compliance costs, permit market features, and firms’ strategic actions. In contrast with the program intentions, we find that loan spreads fall by approximately 25%. We show that this decrease is almost entirely driven by low permit prices, the firms’ proactiveness to store permits, and imperfect foresight of market conditions in phase III. The drop in spreads cannot be explained by the decline in energy prices and/or other confounding factors.
Fields of Study & Subjects
Climate Change Policy and Economics
Fiscal Policy and Economic Growth
Energy
Environment
Economic Growth
Publication details
- Journal / source
- INRIA a CCSD electronic archive server
- Publisher
- Wiley
- Volume
- 58
- Issue
- 3
- Pages
- 637-679
- Publication date
- 1 April 2026
- Language
- EN