The study investigates the potential impact on Italian banks' business loan default rates at the sector level, following the introduction of a tax on CO2 emissions (carbon tax). We perform a counterfactual analysis, building on the microsimulation model of the Bank of Italy, which estimates the share of financially vulnerable firms and their debt.
Assuming that the Government had introduced a carbon tax of €50 per ton of CO2 in 2018, our estimates show that the average quarterly loan default rate for the firms analysed would have increased by around one quarter in 2019 (from 2.8 to 3.6 per cent). Even considering a tax equal to €800 per ton of CO2 - an assumption coherent with a disorderly transition scenario - the default rate would have remained below the historical peak of about 9.5 per cent recorded in 2013. However, these impacts could be more severe if the carbon tax were introduced in periods characterized by higher firm vulnerability or more elevated default rates.
