Seminar by Alessandro Spiganti – 25 February 2020

Tuesday 25 February at 12:00, BASE, Milan.

Alessandro Spiganti is an applied economic theorist. He works at the interface of microeconomics and macroeconomics, with a particular focus on the economics of innovation and climate change economics. He is a Max Weber Fellow at the European University Institute. He is a Research Associate in the Energy, Transportation, Environment Department.

Title: The Carbon Bubble: Climate Policy in a Fire-Sale Model of Deleveraging (with Dr. David Comerford)

Abstract

Committed and credible implementation of climate change policy, consistent with the usual 2°C limit, is thought to require large fossil fuel asset write-offs. This issue, termed the Carbon Bubble, is usually presented as having implications for investors; conversely, this paper discusses its implications for macroeconomic policy. We embed the Carbon Bubble in a macroeconomic model exhibiting a financial accelerator: if investors are leveraged, the Carbon Bubble may precipitate a fire-sale as investors rush for the exits, and generate a large and persistent fall in output and investment. We investigate policy responses which can accompany the writing-off of fossil fuel assets, like debt transfers, investment subsidies, government guarantees, or even deception about the true scale of the required write-off. We find a role for policy in mitigating the Carbon Bubble.