Financial Regulation, Climate Change, and the Transition to a Low-Carbon Economy: A Survey of the Issues

45 Pages Posted: 4 Feb 2022

See all articles by Dimitri Demekas

Dimitri Demekas

London School of Economics & Political Science (LSE)

Pierpaolo Grippa

International Monetary Fund (IMF) - Monetary and Capital Markets Department

Date Written: December 1, 2021

Abstract

There are demands on central banks and financial regulators to take on new responsibilities for supporting the transition to a low-carbon economy. Regulators can indeed facilitate the reorientation of financial flows necessary for the transition. But their powers should not be overestimated. Their diagnostic and policy toolkits are still in their infancy. They cannot (and should not) expand their mandate unilaterally. Taking on these new responsibilities can also have potential pitfalls and unintended consequences. Ultimately, financial regulators cannot deliver a low-carbon economy by themselves and should not risk being caught again in the role of ‘the only game in town.’

Keywords: Financial stability, financial regulation, climate change, climate mitigation policy, low-carbon economy, energy transition, carbon price, green finance

JEL Classification: E58, G28, Q54, Q58

Suggested Citation

Demekas, Dimitri and Grippa, Pierpaolo, Financial Regulation, Climate Change, and the Transition to a Low-Carbon Economy: A Survey of the Issues (December 1, 2021). IMF Working Paper No. 2021/296, Available at SSRN: https://ssrn.com/abstract=4026531

Dimitri Demekas (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Pierpaolo Grippa

International Monetary Fund (IMF) - Monetary and Capital Markets Department ( email )

700 19th St NW
Washington, DC 20431
United States

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