About

This project analyzes the consequences of the risk of a loss in the value of fixed assets used in production processes with substantial greenhouse gas emissions. This risk exists due to the need for policies to mitigate climate change. The risk is commonly referred to as the risk of asset “stranding”. A potential immediate effect of the risk concerns the use of the assets as collateral supporting the debt financing of the assets´ owners: The owners´ access to credit may be impaired because their creditors may want to avoid accepting the assets as collateral for loans. The OVERHANG project seeks to analyze whether the resulting changes in credit supply actually cause additional pollution by making it harder for the owners of polluting assets to obtain financing for investments that would reduce the assets´ greenhouse gas emissions. The project’s acronym refers to the “debt overhang” effect, a well-known effect in corporate finance which induces firms to curb their investments at an inefficiently low level.