Sustainable Finance for a Smooth Low-Carbon Transition
SMOOTH is an European Research Council (ERC) grant awarded to Emanuele Campiglio. The project will contribute to the urgent challenge of mitigating climate change by advancing the understanding of the multiple co-evolving links between financial systems and the transition to a decarbonised society.
The overall objective of the project of SMOOTH is to develop an innovative analytical framework able to provide crucial insights on: i) how to scale up financial resources flowing to low-carbon activities; and ii) how to mitigate the risks of financial instability along the decarbonisation process. SMOOTH results will lay solid grounds for the design and implementation of a coordinated policy effort aimed at achieving a rapid and smooth low-carbon transition.
The SMOOTH project will lay the foundations of an innovative macro-financial analytical framework to provide essential novel insights on the co-evolving links between financial systems and decarbonisation dynamics. Methodologically, it will introduce a breakthrough by linking the balance-sheet approach to macroeconomic analysis with an original representation of investment decisions based on forward-looking expectations of transition pathways. In the course of five years, this integrated framework will overcome the limitations of traditional modelling approaches and will enable me to investigate dynamic decarbonisation scenarios in their full socioeconomic and financial implications. It will shed light on the transmission channels through which financial expectations and behaviours might affect the smoothness of the transition and their effects on growth, financial stability, employment and functional distribution. Building on this knowledge, it will identify a harmonised set of policies to achieve a rapid and non-disruptive low-carbon transition. SMOOTH plans to create a new interdisciplinary field of research integrating elements from macroeconomic modelling, climate economics, political economy, behavioural finance, transition theory and political science, with the aim of developing a solid understanding of the links between finance and the low-carbon transition.