Conference Agenda

The market failures and behavioral anomalies at the source of the Energy Efficiency Gap tend to be studied in isolation, which biases welfare assessment of energy efficiency policies. We develop a dynamic model of home energy retrofit fit for capturing cumulative inefficiencies due to multiple frictions – CO2 externality, cold-related illness, credit rationing, landlord-tenant dilemma, free-riding in multi-family housing, present bias and status quo bias. Focusing on France, we find that health, rental and multi-family frictions each entail higher deadweight losses than the CO2 externality alone. Taking all frictions into account implies that energy efficiency subsidies generate net social benefits – at odds with previous findings. In contrast, the benefit-cost balance of regulations is net negative due to ancillary costs. Finally, the French policy portfolio, which blends subsidies, taxes and regulations, only closes half of the energy efficiency gap. Its efficiency could be improved by better targeting low-income families, multi-family housing and rental housing.

We study the incidence of subsidizing housing retrofits on prices. We leverage cross-sectional and temporal variation in the main policy instrument aimed at fostering housing energy efficiency investment by French households. Two effects combine in a nontrivial way. In a difference-in-difference exercise, we show that a massive pro-poor shift in the targeting of the scheme, which becomes means-tested, translates into higher levels of activity but also higher prices overall, plausibly mediated by labor supply shortages. However, the new means-test also introduces an opportunity for price discrimination in locally rationed markets; as a consequence, poorer households who receive discontinuously higher subsidies actually face lower total price for a given renovation step than richer households. The overall incidence therefore depends on the level of local market power, the extent of price discrimination, and

labor market tensions.

In this paper we study the relationship between financial constraints and direct emissions at the firm level. We employ data on French manufacturing companies containing detailed information on carbon emissions, environmental policy exposure, and financial variables. We exploit the European Central Bank (ECB) hit of the zero lower bound to identify an exogenous shock to financial constraints. Our main finding is that, after relaxing financial constraints, the more constrained firms reduced their $CO_2$ emissions the most. We also investigate on heterogeneity and transmission channels of the main effect. Our findings reveal that the main result is driven by small and medium enterprises, with the emissions of larger corporations being less elastic to the credit ease. Our results highlight that small and medium enterprises reduced their emissions throughout investment in self-generation and co-generation of electricity, and improvements in both energy and economic efficiency. At last, we investigate on the interaction between the shock to financing constraints and the EU ETS environmental policy. We use a nearest neighbour matching algorithm to construct a subsample of firms containing ETS treated companies and a control of non-ETS matched firms. Our estimates suggest that the interactions between financing constraints and environmental policies are small. We argue that the large size of treated companies, allows them to escape from issues related to financing constraints.

This paper links climate science with sovereign risk assessment to produce a single forward-looking measure of country-level climate change risk. We combine the Network for Greening the Financial System (NGFS) climate scenarios with a sovereign credit ratings model to simulate the impact of climate change on credit ratings, cost of debt and probability of default. For the first time, we extend beyond the physical risks of extreme weather events to explicitly incorporate risks associated with transitioning the global economy towards Net Zero. Across the sample of 48 countries and under a scenario of high (low) physical and transition risks, we find average downgrades of 3.9 (2.7) notches and mean increases in the cost of debt of 123 (76) basis points and default probability of 10.4% (6.2%). Counter-intuitively, ratings, default probability, and cost of debt appear insensitive to scenarios in some countries, with important implications for the usefulness of NGFS scenarios across central banks