This study presents a novel methodological framework for assessing the exposure of the Italian financial system to climate policy risks, using a micro-founded approach.
We estimate the energy demand elasticity of Italian households and firms at the micro-level and we use this information to simulate the effects of four one-off carbon taxes (corresponding to €50, €100, €200 and €800 per ton of CO2) on their income and profits. According to our results, a level of carbon taxation within the range of €50-200 per ton does not have a sizeable effect on the share of financially vulnerable agents. The financial risks stemming from climate shocks are limited overall and specific to individual households and industries.
Published in: Journal of Policy Modeling, v. 44, 2, pp. 396-417