Carbon Tax Policy, Stranded Assets and "Double Pillar" Regulation

Abstract

The risk of a transition from climate policy has drawn widespread attention from central banks. By constructing a new Keynes dynamic stochastic general equilibrium model (NK-DSGE) including climate policy, asset quality and "two-pillar" policy, this paper studies the possible transition risk caused by carbon tax policy and analyzes the transition risk from the perspective of stranded assets. On this basis, the effect of the "dual-pillar" policy to deal with the transformation risk is further evaluated and the optimal policy combination is found through the comparative analysis of social welfare. Research shows that:(1)carbon tax policy has a significant emission reduction effect, but it may cause "stagflation" and lead to the "grounding" of carbon-intensive assets, causing a certain risk of transformation.(2)When the central bank deals with the risk of transformation, it should not only focus on the inflation target. At the same time, we should actively stimulate output, promote the development of the low-carbon sector, solve the mismatch between energy supply and demand, and address the root cause of inflation. When the central bank operates the price monetary policy, the central bank can reduce the risk of transformation and improve the operation efficiency through interest rate smoothing.(3)The macro-prudential policy of "brown punishment" can effectively alleviate the risk of transformation and improve social welfare. The macro-prudential policy of "green support" will not only promote the economic recovery, but also lead to the rising leverage ratio of banks in the short term, aggravating the financial risks faced by banks and causing the loss of social welfare.(4)An effective "two-pillar" policy mix is better to the single use of monetary policy tools in mitigating transition risks and improving social welfare.