Carbon tax in a stock-flow consistent model: The role of commercial banks in financing low-carbon transition

With the purpose of performing a simple and original analysis on the impact of carbon tax on low-carbon transition, this paper presents a stock-flow consistent model, paying special attention to the role of commercial banks. Through theoretical analysis, we find that the reduction effect of carbon tax on carbon emissions is amplified by commercial banks via financing more green investments. Moreover, such effect is altered by commercial banks’ capability to issue green loans. The results obtained in this paper facilitate the understandings about carbon tax policy and its coordination with bank-centered financial policies. • A stock-flow consistent model is constructed to examine the impact of carbon tax. • This paper employs carbon intensity to quantify the low-carbon level of the economy. • Commercial banks act as credit creators in financing brown and green investments. • Commercial banks could amplify the effect of carbon tax on carbon intensity. • The reduction effect is altered by banks’ capability to issue green loans.