Methane Emissions and Financial Structures - The role of Finance in mitigating Environmental Degradation

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Inspired by the empirical work of De Haas and Popov (2021), this thesis examines how the financial structure of countries – bank-based versus market-based financial systems – affects their aggregate emissions of methane (CH4). Conducting a fixed effects analysis on a 105-country panel over the period of 1990-2012, the data shows that, while holding both economic and financial development constant, per capita CH4 emissions are significantly higher (lower) in economies with deeper stock (credit) markets. An explanation for this finding may be that (ordinary) equity investors are to a lesser extent aware of methane’s detrimental impact on the world’s environment than (often well-informed) financial intermediaries, consequently being less capable to stimulate methane-intensive firms to lower their emissions of the gas. Importantly, this finance-methane link also survives the inclusion of an additional controlling factor for the stringency of countries’ environmental regulation and is robust to multiple alternative measurements. Moreover, by documenting these results alongside the finance-CO2 link as studied by De Haas and Popov (2021), it is shown that both the per capita emissions of CO2 and CH4 need to be accumulated if one wants to come up with valid implications regarding the association between conventional finance and environmental degradation in genera
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