【论文精读】Bridging socioeconomic pathways of CO2 emission and credit risk

1 Introduction

The context of CO2 emission scenario.

Without proactive measures to limit these CO2 and other GHG emissions, one can expect a global warming by 3 or 4oC, and maybe more, by 2100. This current global warming is and will continue to profoundly disrupt environmental, geographical and economic balances, if no mitigation and adaptation measures are taken. The Paris Agreement at the twenty-first session of the Conference of the Parties (COP 21) is an important milestone in international climate policy as it establishes a global mitigation framework towards 2030 and sets the ground for a global warming with stabilization around 1.5oC only. This idealized scenario is based on a carbon neutrality around 2050, with some variations depending on the countries according to their Nationally Determined Contributions (NDC). Actually there are many other scenarios, depending on the ecological transition trajectory that countries, economic actors and populations will follow. In the most recent scientific literature, these scenarios are known as Shared Socioeconomic Pathways (SSPs)

See Figure 1 for the global CO2 emission in different sectors, in the Organization for Economic Co-operation and Development (OECD), according to the scenarios chosen, the data are available on the SSP Public Database https://tntcat.iiasa.ac.at/SspDb.

Climate risks in finance

Climate change generates new sources of risk (so-called climate risks), in particular physical and transition risks as described by the solemn resounding speech by Mark Carney.

In this work, we mainly focus on the transition risks and explore how to link projection scenarios such as those described in the SSPs by Phase 6 of Coupled Model Intercomparison Project (CMIP6) into credit risk projections for firms. More specifically, we provide a quantitative model where the inputs are some desired paths of CO2 emission (et)t_0, the production characteristics of a company, its sensitivity to CO2 emissions, its climate-free credit spread and the outputs are the stochastic evolution of credit spread in an uncertain commercial demand.

We consider the firm who aims to maximize its production profit and at the same time takes into consideration the CO2 reduction plan described by SSPs. Over-emission compared to the target may induce penalty. From the point of view of the firm, the objective is to determine the optimal strategy of its effective emission by solving a penalized optimization problem. The credit quality of the firm can be impacted by such carbon emission transition via its cash flow. In the classic structural credit approach such as Merton or Black-Cox model, a default event occurs when the firm’s value is inferior to its debt level. We describe the firm’s value process as the discounted value of all its fu