New "green" banking rules actually end up making the rich richer and the poor poorer way more than a simple carbon tax would.
SSRN · March 13, 2026 · 6303041
Why it matters
While many see 'green' credit rules as a gentler way to fight climate change, they actually trap low-wage workers in 'brown' energy sectors by misallocating credit without providing a safety net. Carbon taxes, though seemingly harsher, allow governments to redistribute revenue to those same workers, making them a more egalitarian tool.
From the abstract
We study the distributional consequences of climate-focused financial regulation. We build a finite-horizon heterogeneous agent general equilibrium model with incomplete markets and endogenous climate damages to compare green capital requirements, which restrict credit to polluting firms, with carbon taxes. Green capital regulation lowers emissions but misallocates credit, reduces aggregate efficiency, and raises inequality primarily through depressed wages in the brown sector. Carbon taxes achi