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Maria Borga, Achille Pegoue, Mr. Gregory M Legoff, Alberto Sanchez Rodelgo, Dmitrii Entaltsev, and Kenneth Egesa
This paper presents estimates of the carbon emissions of FDI from capital formation funded by FDI and the production of foreign-controlled firms. The carbon intensity of capital formation financed by FDI has trended down, driven by reductions in the carbon intensity of electricity generation. Carbon emissions from the operations of foreign-controlled firms are greater than those from their capital formation. High emission intensities were accompanied by high export intensities in mining, transport, and manufacturing. Home country policies to incentivize firms to meet strict emissions standards in both their domestic and foreign operations could be important to reducing emissions globally.
Can Sever and Manuel Perez-Archila

-Archila: at mp1278@princeton.edu Contents Glossary Abstract I. Introduction A. Literature II. Data and Facts A. Carbon Emissions B. Carbon Pricing in Colombia C. Firm-level Data, Sector Distribution, and Variables D. Banking Data and Exposures to Sectors III. Transmission of the Stress to the Banking System IV. Scenario 1: US$70 Increase in Carbon Tax A. Firms Under Stress B. Contribution to the Banking Stress C. Aggregate Banking Stress and Individual Exposures V. Other Scenarios VI. Considerations on the Effects of the

Maria Borga, Achille Pegoue, Mr. Gregory M Legoff, Alberto Sanchez Rodelgo, Dmitrii Entaltsev, and Kenneth Egesa

of MNEs and of Domestic Firms Embodied in Exports D. Use of the ICIO of AMNEs E. Data and Methodological Limitations Results A. Carbon Emissions Associated with the Investment Impact of FDI B. Carbon Emissions of Ongoing Operations of MNEs C. Carbon Emissions in Exports of MNEs Conclusion and Policy Implications Annex I. Working Example on Computing Emission Estimates Annex II. Illustration on the Computation of the Output Multiplier References FIGURES 1. Structure of the ICIO Tables for Each Year 2. Carbon Emissions in GFCF of FDI

Mr. Ronald T. McMorran and Ms. Laura Wallace

account, although this will not be easy, given the uncertainty still surrounding many of the links, particularly over the longer run. A recent major Norwegian study, which brought macroeconomists and environmentalists together in an unusual dialogue, looked at this issue by asking whether Norway’s economy would survive very strict environmental policies, such as a carbon-emissions tax (see box above). The answer: yes, given sufficient time to adjust—say 40 years—albeit with lower, but still significant, economic growth relative to a world without a carbon tax. The

Can Sever and Manuel Perez-Archila
This paper builds a framework to quantify the financial stability implications of climate-related transition risk in Colombia. We explore risks imposed on the banking system based on scenarios of an increase in the domestic carbon tax by using bank- and firm-level data. Focusing on the deterioration of firms’ balance sheets and the exposure of banks to different sectors, we assess the extent to which such policy shock would transmit from nonfinancial firms to the banking system. We observe that sectors are affected unevenly by a higher carbon tax. Agriculture, manufacturing, electricity, wholesale and retail trade, and transportation sectors appear to be the most important in the transmission of the risk to the banking system. Results also suggest that a large increase in the carbon tax can generate significant but likely manageable financial stability risks, and that a gradual increase in the carbon tax to meet a higher target over several years could be preferable in terms of financial risks. A gradual increase would also have the benefit of allowing for a smoother adjustment to higher carbon tax for stakeholders.
Maria Borga, Achille Pegoue, Mr. Gregory M Legoff, Alberto Sanchez Rodelgo, Dmitrii Entaltsev, and Kenneth Egesa

-specific information (e.g., on different technologies or processes) that we did not use. Results A. Carbon Emissions Associated with the Investment Impact of FDI The results on carbon emissions associated with the investment impact of FDI provide insights into the main sources of emissions in host economies from final use of domestic products for GFCF financed by FDI. 11 They also allow us to undertake a comparison of emissions by industry in a country and between countries. The estimates are in metric tons of emissions and metric tons of emission per 1 million US

Mr. Bernard P. Herber
Traditional public finance theory may be applied to the internalization of international environmental externalities. The policy constraint imposed by the absence of sovereign international government may be partially overcome through international environmental agreements. Instruments such as cost sharing, found in existing agreements, are generally unsophisticated. Two proposals entailing improved instruments are considered: (a) an international carbon tax, and (b) a global commons trust fund financed by earmarked excise taxes or charges. Political realities appear to preclude the early adoption of sophisticated international environmental taxes, but modest improvements in the design and implementation of existing instruments may be feasible.
Mr. Bernard P. Herber

depending upon its eligibility under the reimbursement rules. Thus, it could either receive net payments from the fund, make net payments to the fund, or come out even. The fund itself would be in balance at all times (except for administrative costs). Hoel argues that such an approach would avoid a large and costly international bureaucracy, as compared to a supranational tax, while reducing the potential for free-rider behavior that would accompany nationally imposed ICTs. He suggests that a rational nation would select a carbon emissions level so that the sum of

Can Sever and Manuel Perez-Archila

the firm-level (due to different variables available in the ORBIS database), 1 our quantitative results are not comparable to theirs. To the best of our knowledge, this is the first study evaluating the financial stability implications of a climate-related transition risk (driven by a higher carbon tax) for an emerging market economy by using detailed bank- and firm-level data. II. Data and Facts A. Carbon Emissions Context According to Colombia’s Second Biennial Update Report to the UNFCCC, referred to as BUR from now on, Colombia’s gross

International Monetary Fund. Asia and Pacific Dept

. Together, these reforms help move China towards an independent, market-based, monetary policy. RMB Increasingly Referencing a Basket 1/ Sources: Bloomberg LP; and IMF staff estimates. 1/ Standard deviation caculated on a 30-business-day forward rolling window. Fiscal framework . A wide range of reforms are underway: the new budget law is being implemented (aimed at improving transparency and accountability of local government finances); the VAT extension to services was completed; a carbon emission trading scheme (the largest in the world) will be rolled