The Impact of Green Financial and Monetary Policy on the Low-Carbon Energy Transition

Aligning economic pathways with a 2°C climate target implies rapid decarbonisation and a substantial increase in renewable energy (RE) investment and deployment. The financial system plays a key role in mobilising these investments. To support these efforts and address related climate risks, financial regulators and central banks increasingly adopted green financial and monetary policies (GFMP), such as disclosure requirements or climate stress testing. However, empirical evidence on the impacts of GFMP on the low-carbon energy transition remains scarce.

The paper presented in this webinar sheds light on the impacts of GFMP on RE capacity, a measure of RE investment and key indicator of countries’ transition performance. The author constructs a country-level GFMP index capturing the flow and stock of policy intensity and mix across 26 countries for the years 2000 to 2023. Leveraging this index, two-way fixed effects and quantile panel regressions are deployed to quantify aggregate, policy type-specific, and heterogeneous conditional impacts. Results show a positive relationship between GFMP intensity and RE capacity. On average, each adopted GFMP is associated with an addition of 0.02 gigawatt RE capacity per million capita, corresponding to 4.8 Mt CO2 emissions avoided when displacing fossil energy sources. Distinguishing by policy type, incentive-based instruments are found to be about twice as effective as informational instruments. Both the adoption of GFMP and the size of effect shows heterogeneity. This study provides an early empirical quantification of the impact of GFMP on the energy transition, and findings hold important policy implications on the green transition.

About Lukas Rischen
Lukas started his PhD at the PECan Research Group, which is based at Humboldt University Berlin and the Potsdam Institute for Climate Impact Research, in 2024. His research explores the interaction of climate risk and climate policy with a focus on the financial system and its environmental implications. In doing so, he leverages causal inference methods. Lukas holds a BSc in Economics and Business Economics from the University of Amsterdam, and a MSc in Environmental Economics and Climate Change from the London School of Economics and Political Science. Prior to his PhD, he worked at Vivid Economics (now McKinsey & Company), where he supported private and public financial institutions on topics including climate scenario analysis, transition modelling, and carbon pricing.