Aligning finance with the green transition: From a risk-based to an allocative green credit policy regime.

38 Pages Posted: 7 Sep 2022

See all articles by Katie Kedward

Katie Kedward

UCL Institute for Innovation and Public Purpose

Daniela Gabor

University of the West of England (UWE)

Josh Ryan-Collins

UCL Institute for Innovation and Public Purpose

Date Written: July 25, 2022

Abstract

The green transition requires a substantive shift in financial flows that will not occur without policy interventions. We map out and critically assess the dominant, ‘risk-based’ approach which relies on changing the relative prices of green /dirty assets. Since it outsources the pace and nature of decarbonisation to private capital, the risk approach is poorly equipped to deal with the shift towards market-based finance, is vulnerable to arbitrage and regulatory capture, and is unable to deal with uncertainty or carbon lock-in dynamics. We propose an ‘allocative green credit policy’ regime that is organised around green industrial policy objectives and democratically agreed green missions. This draws on post-war credit policy regimes as it involves both quantitative and priced-based interventions in credit and institutional capital markets but also deals with the specific challenges posed by market-based finance. We discuss the implications of such a regime for central bank independence, inflation targeting and the management of stranded assets.

Keywords: green transition, climate finance, green finance, credit policy, financial regulation, monetary policy, political economy, critical macro finance, market-based finance, shadow banks

JEL Classification: Q54, Q57, E44, E58, E61, G28, P16

Suggested Citation

Kedward, Katie and Gabor, Daniela and Ryan-Collins, Josh, Aligning finance with the green transition: From a risk-based to an allocative green credit policy regime. (July 25, 2022). Available at SSRN: https://ssrn.com/abstract=4198146 or http://dx.doi.org/10.2139/ssrn.4198146

Katie Kedward (Contact Author)

UCL Institute for Innovation and Public Purpose ( email )

11
Montague Street
London, WC1B 5BP
United Kingdom

Daniela Gabor

University of the West of England (UWE) ( email )

Blackberry Hill Bristol
West Bristol
Bristol, Avon BS16 1QY
United Kingdom

Josh Ryan-Collins

UCL Institute for Innovation and Public Purpose ( email )

11
Montague Street
London, WC1B 5BP
United Kingdom

HOME PAGE: http://https://www.ucl.ac.uk/bartlett/public-purpose/

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