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

IMF Working Paper WP/21/296, December 2021, International Monetary Fund, Washington DC.

Posted: 15 Jun 2022

See all articles by Dimitri G. Demekas

Dimitri G. Demekas

School of Public Policy, LSE; International Finance Corporation, World Bank Group

Pierpaolo Grippa

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

Date Written: December 20, 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, climation mitigation policy, low-carbon economy, energy transition, carbon price, green finance

JEL Classification: E58, G28, Q54, Q58

Suggested Citation

Demekas, Dimitri G. and Grippa, Pierpaolo, Financial Regulation, Climate Change, and the Transition to a Low-Carbon Economy: A Survey of the Issues (December 20, 2021). IMF Working Paper WP/21/296, December 2021, International Monetary Fund, Washington DC., Available at SSRN: https://ssrn.com/abstract=4127588

Dimitri G. Demekas (Contact Author)

School of Public Policy, LSE ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

International Finance Corporation, World Bank Group

1818 H Street NW
Washington, DC 20433
United States

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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