Green financial policies and capital flows

• Published in: Physica A Vol. 522; pp. 135 - 146
• Main Authors: Yang, Dong-xiao, Chen, Zi-yue, Yang, Yong-cong, Nie, Pu-yan
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 15.05.2019
• Subjects: Capital constraint; Capital flow; Green-credit policy; Renewable energy; Green-credit policy; Capital flow; Capital constraint; Renewable energy
• ISSN: 0378-4371; 1873-2119
• DOI: 10.1016/j.physa.2019.01.126

As traditional energy is depleting, it is urgent to search for substitutes of traditional energy. Therefore, policies promoting the development of renewable energy are introduced. Under the condition of non-capital constraints, the green-credit policy and the production subsidy about renewable energy enterprises are compared. The results show that changes of market interest rate provide different implications for regulators to choose between the two policies. Under the condition of capital constraints, it is found that the green-credit policy has positive effect on renewable energy enterprises, and the effect enlarges when the difference between green rates and market interest rate becomes wider. With the increase of carbon tax and the negative externality of traditional energies, the capital flows into renewable energy enterprises. This article provides support for the development of renewable energy and its policies based on the comparison of the two policies. According to the results of this study, it is believed that the implementation of both types of policies will have a more positive effect. •Market rate is related to policy choice between green credit and output subsidy.•Green-credit contributes to the capital flow to renewable energy industry.•Lower green credit rates lead to more capital for renewable energy industry.•Carbon tax and negative externality positive correlate to renewable energy’s capital.