Financing Low-Carbon Transitions through Carbon Pricing and Green Bonds

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Diversifier or more? Hedge and safe haven properties of green bonds during COVID-19

“…The present paper relates to the literature that discusses the emergence and performance of green finance in financial markets and its role in shaping up sustainable and environmentally friendly investments. Many studies have explored the effectiveness of green bonds for funding the cost of climate change (Flaherty et al, 2017;Banga, 2019;Semmler et al, 2019). Tang and Zhang (2020) assert that stock prices respond positively to the issuance of green bonds, and consequently, stock liquidity and institutional ownership also improve.…”

Economic Growth Theory and Natural Resource Constraints: A Stocktake and Critical Assessment

“…Moreover, as novel green finance instruments are developed (by the public and private sector) to support impact investing, the price of green technology will fall and shift incentives further towards the green technology sector. Indeed, we are seeing increasingly more work on, and attention to, the design of green finance tools (Hepburn, Pless and Popp 2018; Heine et al 2019; The Paulson Institute et al 2020). And finally, as more impact investing occurs, the standing on shoulders parameter will invariably increase in favour of green technology.…”

De-risking of green investments through a green bond market – Empirics and a dynamic model

“…New green investments can be fostered by decreasing the interest rate paid on the debt (e.g., de-risked green bonds) but also by reducing the future operating cost (e.g., subsidies to decrease operational cost). Although carbon pricing can induce low-carbon transition, high capital and upfront costs demand the combination of green bonds and carbon taxation as de-risking instruments (Steckel & Jakob, 2018;Heine et al, 2019), since an increasing scale is likely to lead to decreasing cost, see Figure 1. We adapt the model to verify the effect of de-risking bonds (or not) in an economy in which the Government taxes the carbon industry and provides subsidies for renewable energy activities.…”

“…3 A discussion about the interaction of carbon taxation and green bonds is also set by Heine et al (2019) and Steckel & Jakob (2018).…”