Affiliation:
1. University College London
2. City, University of London
3. UCL
4. KTH Royal Institute of Technology
Abstract
Abstract
A rapid phase-out of bank lending to the fossil fuel sector is critical if Paris climate targets are to remain within reach. Here we use a systems lens to explore syndicated fossil fuel debt markets - a critical source of capital flows to fossil fuel companies - and find that they are resilient to uncoordinated and unregulated phase-out scenarios. In a setting where capital can be substituted between banks, phase-out is inefficient unless capital requirements rules limit banks’ exposure to the sector. With capital requirements rules in place a tipping point is observed from inefficient to efficient phase-out as banks sequentially exit the sector. This tipping point depends critically on the stringency of capital requirements rules, and it is reached sooner in a targeted phase-out scenario where big banks lead the phase-out. If sufficiently tightened, capital requirements rules can amplify the impact of individual banks’ phase-out and accelerate the decline of fossil fuel debt flows.
Publisher
Research Square Platform LLC
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