Financial Policy, Green Transition and Recovery after the COVID-19

60 Pages Posted: 1 Nov 2020

See all articles by Dongyang Pan

Dongyang Pan

University College London; Central University of Finance and Economics (CUFE)

Chuanqi Chen

Central University of Finance and Economics (CUFE)

Michael Grubb

University College London

Yao Wang

Central University of Finance and Economics (CUFE)

Date Written: October 2020

Abstract

Public policy that acts on financing activity - referred to here as financial policy - can play an important role in supporting the green transition and recovery of the economy. This research studies such specific role of financial policy, the mechanism of support, and how financial policy can be coordinated with other public policies that encourage the green transition, particularly in the recovery period after the COVID-19 pandemic. The method we employed is a macroeconomic growth model with “directed technical change”, the natural environment, and financial features. It is found that (1) Financial constraint is non-trivial in the economy and could delay the green transition if no additional policy is introduced. Financial policy directionally supporting the green economic sector can facilitate the green transition and help prevent the potential environmental disaster. (2) A financial policy can bring effects similar to what the traditional green economic policies can do in supporting the green transition. Compared with a traditional policy, the financial policy has certain advantages and disadvantages. There is space for financial policy to mix with other policies to save cost and improve the effect. (3) A green recovery after the COVID-19 shock can be realised with the policy mixes. This pandemic also provides a good time window to fasten the policy-driven green transition by strengthening the green financial policy. These findings not only justify the desirability of the currently popular “green financial policy”, show the way of policy conduction and coordination, but also reveal the special value of such policy after the COVID-19 if we want to accelerate the “green recovery”.

Keywords: Green Financial Policy, Transition, Green Recovery, COVID-19

Suggested Citation

Pan, Dongyang and Chen, Chuanqi and Grubb, Michael and Wang, Yao, Financial Policy, Green Transition and Recovery after the COVID-19 (October 2020). Available at SSRN: https://ssrn.com/abstract=3719695 or http://dx.doi.org/10.2139/ssrn.3719695

Dongyang Pan (Contact Author)

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Central University of Finance and Economics (CUFE)

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Chuanqi Chen

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Michael Grubb

University College London

Gower Street
London, WC1E 6BT
United Kingdom

Yao Wang

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

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