Policy transition risk, carbon premiums, and asset prices

Wed, 01 Jan 2025 00:00:00 +0000

Research question and motivation: Central bankers, regulators, and investors increasingly worry about climate “transition risks” — abrupt shifts in climate policy, green technology breakthroughs, or consumer-preference shifts that re-price assets (Carney’s “tragedy of the horizon”). Rather than use the fixed NGFS-style stress-test scenarios, the authors ask how policy transition risk — modeled as stochastic, reversible jumps between climate-policy regimes — endogenously affects carbon pricing, asset prices, risk premiums, the risk-free rate, and the speed of the green transition.

Christoph Hambel | Macro Paper Warehouse

Policy transition risk, carbon premiums, and asset prices