Conference Agenda

We study the impact of the introduction of the German national CO2 price on car loans for combustion engine vehicles. The CO2 price specifically targets the transportation sector and entails a steadily rising price path from €25 per ton of CO2 in 2021 to €55 in 2025. By combining data on 24 million European car loans with detailed vehicle information, we apply a tight differences-in-differences design that compares the within-variation in similar car models across treated and control countries. We find a sizable treatment effect of 0.5 percentage points higher interest rates for affected cars for both the policy announcement in 2019 and the policy implementation in 2021. Moreover, we find shrinking lending volumes and reduced credit duration as a result of the policy, indicating that banks incorporate medium to long term transition risk by reducing lending terms. Further analysis reveals notable heterogeneity in the results. Most notably, a triple differences design shows that banks differentiate their lending decisions based on fuel efficiency as the increase in interest rates is higher for more fuel-intensive cars. Concerning banks, we find that commercial banks reduce discounts while manufacturer-owned captive increase discounts, potentially in order to protect manufacturer sales from rising transition risks. These results provide first evidence that carbon pricing policies not only have direct effects on emissions through increasing fuel prices but also impact emissions indirectly through consumer credits.