The impact of human consumption and production on the environment is one of the biggest concerns facing policymakers. This project explores a non-conventional policy proposal to introduce differential interest rates, with lower, subsidised rates for environmentally beneficial investment. While recent policy debates have highlighted the potential of green‑differentiated rates, existing analyses remain largely descriptive and lack a formal account of how such instruments shape technological choices within production. This project addresses this gap by developing a new theoretical framework based on the classical tradition of political economy to examine how such policy can support the transition towards technologies compatible with climate and environmental goals.

The research advances the hypothesis that green technologies are often not adopted because they remain more costly and therefore less profitable within current economic structures. Rather than relying on pricing externalities, the project argues that policy must directly reshape the cost structure of production. Differential interest rates offer an alternative mechanism capable of altering relative prices of production and shifting firms’ choice of technique toward environmentally sustainable options. Brazil’s long‑standing experience with subsidised green credit, particularly through the national development bank (BNDES), provides a case study that grounds the theoretical analysis in real‑world practice.

Methodologically, the project combines analytical modelling with interdisciplinary dialogue across political economy, ecological macroeconomics, and finance. A series of collaborative workshops in Europe and Latin America will support the development and refinement of the framework, informed by institutional insights from practitioners involved in green‑directed credit.

The project contributes to ISRF’s mission by challenging incumbent economic paradigms and proposing an alternative conceptual foundation for understanding the financial architecture of the green transition. Its outcomes will include two journal publications, and the establishment of a broader research agenda on the institutional design of green credit systems.