Vertical acquisition and carbon capture and storage choices under cap-and-trade regulation with sustainable finance

doi:10.1016/j.eneco.2024.107912

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Title:	Vertical acquisition and carbon capture and storage choices under cap-and-trade regulation with sustainable finance
Authors:	Chen, Shi;Zhao, Yonghong;Chang, Chuen-Ping;Lin, Jyh-Horng;Chang, Ching-Hui
Keywords:	Cap-and-trade;Carbon capture and storage;Sustainable development goals;Sustainable insurance;Vertical acquisition
Date:	2024-09-18
Issue Date:	2024-09-23 12:05:18 (UTC+8)
Publisher:	Energy Economics
Abstract:	In this paper, we establish a contingent claim framework for environmental management. The paper focuses on the vertical acquisition of a supply chain in the context of sustainable insurance (i.e., sustainable finance), specifically considering carbon capture and storage (CCS) technology choices and cap-and-trade regulations. The main results are as follows. Firstly, a more stringent cap-and-trade scheme increases equity efficiency in sustainable insurance, particularly when the green upstream manufacturer with advanced CCS technology acquires the brown downstream manufacturer, which also uses advanced CCS technology. Secondly, it harms risk efficiency, especially when the green upstream manufacturer with backward CCS technology acquires the brown downstream manufacturer, which uses advanced CCS technology. Thirdly, it increases the default risk in the insurer’s equity, especially when the green upstream manufacturer with backward CCS technology acquires the brown downstream manufacturer, which also uses backward CCS technology. Overall, cap-and-trade’s effects on equity and risk efficiency in vertical acquisition and default risk in insurer’s equity within sustainable insurance depend on adopting CCS technology. Policymakers should incentivize advanced CCS technologies in vertical acquisitions to enhance equity and reduce default risks, supporting long-term financial stability and environmental sustainability toward Sustainable Development Goals.
Relation:	Energy Economics 139 (2024) 107912
DOI:	10.1016/j.eneco.2024.107912
Appears in Collections:	[Graduate Institute & Department of International Business] Journal Article

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