Green Transition: Identifying Vulnerable Industries and Bank Loans in the Czech Republic

ABSTRACT

This paper aims to identify the most emission-intensive industries in the Czech economy using an environmentally extended input-output framework to determine whether decarbonization of the economy might jeopardize financial system stability. The main contribution of this paper to the existing literature lies in connecting bank industry-specific loan exposures with industry-specific emission intensities, which are used to calculate potential credit losses after the introduction of a carbon tax. The analysis shows that the Czech banking sector is not significantly concentrated in industries which are most vulnerable to decarbonization of the economy and threats to the financial stability of the green transition are currently low.

KEYWORDS:

• Emission intensity
• environmentally extended input-output analysis
• financial stability
• systemic risk

JEL codes:

• E58
• H25
• Q01

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. Please note, that throughout the paper are all GHG emissions expressed in CO2 equivalent in line with the global warming potential concept defined in the Kyoto protocole. In this example, all numbers are illustrative and do not represent the real values of GHG emissions created in the production process.

2. One can distinguish between two models according to the ultimate goal of the analysis. In an open model, there exists a consumption vector D = (d₁, d₂, ., d_S)^T for which at least one element d_i is positive. The problem solved is the production level if external demand is given. A closed model assumes that all production is consumed by industries (each element of final demand equals 0) and the problem solved is the relative price of each product (Miller and Blair 2009).

3. https://apl.czso.cz/pll/rocenka/rocenkaout.dod_uziti?mylang=EN.

4. http://appsso.eurostat.ec.europa.eu/nui/show.do?lang=en&dataset=env_ac_ainah_r2.

5. https://www.cnb.cz/cnb/STAT.ARADY_PKG.PARAMETRY_SESTAVY?p_sestuid=44871&p_strid=AABBAC&p_lang=EN and https://www.cnb.cz/cnb/STAT.ARADY_PKG.PARAMETRY_SESTAVY?p_sestuid=44878&p_strid=AABBAC&p_lang=EN.

6. Carbon tax will have a character of excise duty and thus, it is appropriate comparing it with a gross operating surplus (which can be viewed close to EBITDA in company profit statement).

7. At the time of writing this paper in April 2022.

Additional information

Funding

The research has been supported by Prague University of Economics and Business IGA F1/47/2022. The views expressed in this paper are those of the author.