Carbon Abatement Policies, Green Technology Adoption, and Transition Risks
XIONG Chen, YANG Ao, ZHANG Zhaopeng
Economics and Management School, Wuhan University; College of Economics, Shenzhen University; School of Economics and Management, The Open University of China
Summary:
The report to the 20th National Congress of the CPC emphasizes “accelerating the transition to a model of green development” and “working actively and prudently toward the goals of reaching peak carbon emissions and carbon neutrality.” Recently, carbon reduction policies, including emissions trading, have strongly driven the green transition under high-quality development. However, these policies expose high-carbon assets to risks of depreciation or stranding, which may further trigger financial risks. Effectively responding to these transition risks and smoothly promoting the low-carbon transition are currently a crucial research topic. In the context of coordinating carbon reduction with transition risk prevention, promoting corporate green technology adoption is not only a fundamental means to advance the economic transition but also a potentially effective countermeasure to mitigate transition risks. By adopting green technologies, enterprises reduce emissions, which helps resolve emission pressures and operational risks, thereby alleviating the depreciation pressure on high-carbon assets and resolving transition risks caused by carbon policies. Based on this, accurately quantifying the impacts of carbon policies on China's economic and financial systems, exploring the role of green technology adoption in resolving transition risks, and examining mitigation policies such as green finance and fiscal policy from an endogenous technology perspective will provide valuable references for a smoother low-carbon transition in economic development. This paper constructs an environmental dynamic general equilibrium model featuring endogenous corporate green technology adoption, alongside green and brown sectors, to explore carbon policies' transition risk effects and the risk-resolving role of green technology. Taking carbon emissions trading as the policy, we solve the steady-state changes of the model to analyze its long-term effects. We then analyze the transition dynamics of carbon pricing and how green technology adoption influences its risk effects. Additionally, we study the risk-mitigating effects of green technology subsidies and the synergistic effects of green fiscal and financial policies. Finally, using bank risk indicators as proxies for transition risks, we empirically test the low-carbon transition's risk effects and green technology's moderating role using financial data from 277 local banks between 2009 and 2023. The findings reveal: (1) Carbon pricing effectively reduces emissions and facilitates the industrial green transition, but negatively impacts macroeconomic and financial stability, indicating the existence of transition risks. (2) Corporate green technology adoption accelerates the green transition while resolving risks triggered by carbon pricing. (3) Green technology subsidies simultaneously promote the transition, mitigate risks and enhance welfare. (4) While green finance efficiently mitigates risks, it deteriorates transition-period welfare. Synergizing green fiscal and financial policies can achieve multidimensional goals. (5) The empirical analysis of regional banks validates conclusions of the theoretical model. This paper proposes the following policy recommendations: First, coordinate emission reduction and risk prevention by solidifying cross-departmental coordination mechanisms. Establish a carbon accounting and financial data sharing platform and a joint policy risk assessment system. Second, deepen market mechanisms to promote the capitalization and financialization of green technologies. Improve technology trading markets, establish interconnection mechanisms with carbon markets, and solidify green sci-tech financial service platforms. Third, deepen green fiscal and financial synergy. Combine direct subsidies with technology commercialization financing guarantee funds, and create a combined model of “targeted local fiscal interest subsidies plus the central bank's structural monetary tools.” The contributions of this paper are threefold: First, it explores the impacts and channels of carbon policies on macroeconomic and financial risks under endogenous green technology, and examines the impact of technology adoption on the transition path of carbon pricing, thereby enriching the mechanisms of how carbon policies affect economic and financial instability. Second, from an endogenous technology perspective, it explores the synergistic effects of green fiscal and financial policies, providing policy references for preventing macroeconomic and financial risks during the transition. Third, it empirically advances research on the impacts of carbon policies on bank risks, revealing the mitigating effect of green technology adoption on transition risks.
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