Adoption of green technology with financial friction

Titelangaben

Herweg, Fabian:
Adoption of green technology with financial friction.
In: Finance Research Letters. Bd. 71 (2025) . - 106388.
ISSN 1544-6123
DOI: https://doi.org/10.1016/j.frl.2024.106388

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Abstract

We investigate firms’ incentives to adopt green technology. To cover the adoption costs, a firm needs a bank loan. The bank cannot observe firms’ adoption costs and offers a loan contract that allows it to earn an intermediation margin. The Pigouvian tax leads to optimal abatement but inefficiently low adoption. The first-best outcome is achieved via a combination of environmental tax and loan subsidy. If the regulator is restricted to an environmental tax, it faces a trade-off between optimal adoption and optimal abatement. In this case, the second-best tax rate exceeds the Pigouvian tax rate.