Climate Finance, Innovation and Challenges for Policy

Date
Mon, Sep 12 2022, 9:00am - Tue, Sep 13 2022, 11:15am PDT
Location
Lucas Conference Center, Room A
Landau Economics Building
579 Jane Stanford Way, Stanford
[In-person session]

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Organized by
  • Juliane Begenau, Stanford Graduate School of Business
  • Stefano Giglio, Yale University
  • Lars Peter Hansen, University of Chicago
  • Monika Piazzesi, Stanford University

The segment would bring together research on how to best finance companies that innovate on green technologies, the pricing of climate risks in financial markets, banks' exposures to climate risk and their regulation, the impact of monetary policy on climate change, and policies more broadly that help mitigate climate changes.

In This Session

Monday, September 12, 2022

Sep 12

8:30 am - 9:00 am PDT

Registration Check-In & Breakfast

Sep 12

9:00 am - 9:45 am PDT

The CO2 Question: Technical Progress and the Climate Crisis

Presented by: Marcin Kacperczyk (Imperial College London)
Co-author(s): Patrick Bolton (Columbia University) and Moritz Wiedemann (Imperial College London)

Who engages in green R&D and how is corporate behavior affected by green technical progress? Based on global patent filings, corporate financial reporting, and corporate carbon emissions we analyze corporate green and brown R&D activity and its effects in reducing carbon emissions. We find consistent support for the path-dependence hypothesis of innovation. In each sector around the world innovating companies with higher carbon emissions tend to engage more in brown R&D and less in green R&D. Despite a consistent rise in the share of green R&D over our sample period we find little effect of green innovation on future carbon emissions. Direct emissions of green innovating companies are not significantly affected by green innovation across all sectors and around the world, whether in the short term (one year after filing a green patent) or in the medium term (three years after filing). However, we find weak evidence of a small reduction in indirect upstream emissions following green patent filings.

Sep 12

9:45 am - 10:00 am PDT

Break

Sep 12

10:00 am - 10:45 am PDT

The Great Carbon Arbitrage

Presented by: Alissa Kleinnijenhuis (Stanford University)
Co-author(s): Tobias Adrian (International Monetary Fund) and Patrick Bolton (Columbia University)
Sep 12

10:45 am - 11:00 am PDT

Break

Sep 12

11:00 am - 11:45 am PDT

Emission Caps and Investment in Green Technologies

Presented by: Augustin Landier (HEC)
Co-author(s): Bruno Biais (HEC)

To the extent that firms don't internalise the negative externalities of their CO2 emissions, government intervention is needed to curb global warming. We study the equilibrium interaction between firms, which can invest in green technologies, and government, which can impose emission caps but has limited commitment power. Two types of equilibria can arise: If firms anticipate caps, they invest in green technologies. These investments have positive spillover effects, lowering the aggregate cost of emission reductions for all firms, thus making the government willing to cap emissions. If  firms anticipate no caps, they don't invest in green technologies, and the government finds it too costly to cap emissions. A large fund, engaging with firms' management to foster investment in green technologies, can tilt equilibrium towards emission caps.

Sep 12

12:00 pm - 1:00 pm PDT

Lunch

Sep 12

1:00 pm - 1:45 pm PDT

How Unconventional Is Green Monetary Policy?

Presented by: Monika Piazzesi (Stanford University)
Co-author(s): Melina Papoutsi (ECB) and Martin Schneider (Stanford)
Sep 12

1:45 pm - 2:00 pm PDT

Break

Sep 12

2:00 pm - 2:45 pm PDT

Does Climate Change Impact Sovereign Bond Yields?

Presented by: Mike Barnett (Arizona State University)
Co-author(s): Constantine Yannelis (University of Chicago)

This paper studies the impact of current expectations about long-term climate change damage on sovereign bond yields. Sovereign bond yields are particularly important from a policy perspective, as most climate change mitigation decisions are taken at the national level, and borrowing cost today may serve as a disciplining device. We use scientific projections of climate change damage, and compare the spread in yields between long and short term bonds. We find that projected climate change damage has large effects on yields for bonds with long maturities, but not for short term maturity bonds. The effect of projected climate change damage is monotonically increasing in maturity. We discuss the broader asset pricing and macroeconomics effects implied by our results.

Sep 12

2:45 pm - 3:00 pm PDT

Break

Sep 12

3:00 pm - 3:45 pm PDT

Pricing of Climate Risk Insurance: Regulatory Frictions and Cross-Subsidies

Presented by: Ana-Maria Tenekedjieva (Board of Governors of the Federal Reserve System)
Co-author(s): Sangmin Oh (University of Chicago) and Ishita Sen (Harvard University)
Sep 12

3:45 pm - 4:00 pm PDT

Break

Sep 12

4:00 pm - 4:45 pm PDT

Uncertainty in Space and Time: Carbon Prices and Forest Preservation in the Brazilian Amazon

Presented by: Lars Peter Hansen (University of Chicago)
Co-author(s): José Scheinkman (Columbia University), Juliano Junqueira Assunção (Pontifícia Universidade Católica do Rio de Janeiro), and Todd Munson (Argonne National LArgonne National Laboratory)
Sep 12

5:00 pm - 6:00 pm PDT

Drinks

Sep 12

6:00 pm - 9:00 pm PDT

Dinner

Tuesday, September 13, 2022

Sep 13

8:00 am - 8:30 am PDT

Registration Check-In & Breakfast

Sep 13

8:30 am - 9:15 am PDT

A Quantity-Based Approach to Constructing Climate Risk Hedge Portfolios

Presented by: Stefano Giglio (Yale University)
Co-author(s): Georgij Alekseev (NYU), Quinn Maingi (NYU), Julia Selgrad (NYU), and Johannes Stroebel (NYU)
Sep 13

9:15 am - 9:30 am PDT

Break

Sep 13

9:30 am - 10:15 am PDT

Too Levered For Pigou. A Model of Environmental and Financial Regulation

Presented by: Magdalena Rola-Janicka (Tilburg University)
Co-author(s): Robin Döttling (Erasmus University Rotterdam)

In the presence of financial frictions, optimal emissions taxes may be below the
Pigouvian benchmark (equal to the social cost of emissions) if emissions taxes and
abatement costs amplify financial constraints, or above the Pigouvian benchmark if physical climate risks have a substantial impact on collateral values. With non-
Pigouvian emissions taxes borrowers generally do not correctly internalize the effect of their leverage on welfare through emissions, and consequently welfare can be
improved by complementing emissions taxes with leverage regulation.

Sep 13

10:15 am - 10:30 am PDT

Break

Sep 13

10:30 am - 11:15 am PDT

Do House Prices Reflect Climate Change Adaption? Evidence from the City on the Water

Presented by: Matteo Benetton (UC Berkeley) Simone Emiliozzi (Bank of Italy), Elisa Guglielminetti (Bank of Italy), Michele Loberto (Bank of Italy) and Alessandro Mistretta (Bank of Italy)
Co-author(s): Simone Emiliozzi (Bank of Italy), Elisa Guglielminetti (Bank of Italy), Michele Loberto (Bank of Italy) and Alessandro Mistretta (Bank of Italy)

Investment in adaptation is a critical channel to reduce the damage from climate change, yet there is limited evidence about its effectiveness and costs. We exploit the activation of a sea wall to protect the city of Venice from increasingly high tides to provide new evidence on the capitalization of infrastructure investment in climate change adaptation into housing values. Exploiting variation in the activation of the sea wall – based on expected tides – as well as in the exposure of different properties – based on characteristics (ground vs higher floors, stilts elevation) – we find that the sea wall increases house prices by 3% for properties above the activation threshold and by an additional 6% for ground-floor properties. Overall, the sea wall generates e350 millions in additional residential properties value, which corresponds to 2.2% of the value of the total residential housing stock in Venice. Infrastructure investment in climate change adaptation lowers the riskiness of real estate exposed to high tides and sea level rise.