An empirical analysis of climate and environmental policy risk, the cost of debt and financial institutions' risk preferences

Xiaoyan Zhou · Ben Caldecott · Gireesh Shrimali · Hanyu Zhang

16 citations0/0 files storedEnergy Economics

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Sustainable Finance and Green Bonds Climate Change Policy and Economics Energy, Environment, Economic Growth

Abstract

This study examines the impact of regulatory risk on the cost of debt and investment preferences across energy sources. We use the OECD Environmental Policy Stringency Index, loan spreads and investment decisions as measures of climate and environmental (CE) policy risk, cost of debt and risk preferences, respectively. We find that the stringency of CE policy risk influences investors' assessment of investment risks and capital allocation across energy sources. In the energy production sector, we observe that greater stringency in CE policies (such as carbon trading schemes) is associated with lower borrowing costs for renewable energy compared to fossil fuels, leading to increased investment in renewables. Moreover, as CE policies become more stringent in a country, the probability of capital flowing into Oil & Gas or coal diminishes. In the electric utilities sector, we provide evidence that CE policies (solar & wind support policies) effectively attract more capital to renewable electric utilities. • We study the impact of climate and environment (CE) policy on the cost of debt and risk preferences across energy sources in the loan market. • We find that the stringency of CE policies risk is priced by financial institutions, which influences their investment choices among energy sources in the loan market. • In the energy production sector, the cost of debt for renewable energy is higher than that of conventional energy sources. However, the introduction of a higher level of CE policy stringency brings this capital cost down and induces lenders to issue cheaper loans to renewable firms. • In the electric utilities sector, solar and wind support policy instruments, are shown to attract loan investments to renewable firms.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 16 citations exist upstream.

References

1952PORTFOLIO SELECTION*2009Bank lending during the financial crisis of 2008 2014Environmental Externalities and Cost of Capital 2010Institutional Theory and Entrepreneurship: Where Are We Now and Where Do We Need to Move in the Future?2008The Oxford Handbook of Public Policy 2007Environmental and technology policies for climate mitigation 2014Environmental Policy and Directed Technological Change: Evidence from the European Carbon Market 2002Sex differences and statistical stereotyping in attitudes toward financial risk

Cited by

2025The Impact of Climate Change Risk on Corporate Debt Financing Capacity: A Moderating Perspective Based on Carbon Emissions

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.