Financing Low-Carbon Transitions through Carbon Pricing and Green Bonds
To finance the transition to low-carbon economies required to mitigate climate change, countries are increasingly using a combination of carbon pricing and green bonds. This paper studies the reasoning behind such policy mixes and the economic inte...
| Main Authors: | , , , , , , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/808771566321852359/Financing-Low-Carbon-Transitions-through-Carbon-Pricing-and-Green-Bonds http://hdl.handle.net/10986/32316 |
| Summary: | To finance the transition to low-carbon
economies required to mitigate climate change, countries are
increasingly using a combination of carbon pricing and green
bonds. This paper studies the reasoning behind such policy
mixes and the economic interaction effects that result from
these different policy instruments. The paper models these
interactions using an inter-temporal model that proposes
burden sharing between current and future generations. The
issuance of green bonds helps to enable immediate investment
in climate change mitigation and adaptation, and the bonds
would be repaid by future generations in such a way that
those who benefit from reduced future environmental damage
share in the burden of financing the mitigation efforts
undertaken today. The paper examines the effects of
combining green bonds and carbon pricing in a three-phase
model and uses a numerical solution procedure that allows
for finite-horizon solutions and phase changes. The paper
shows that green bonds perform better when they are combined
with carbon pricing. The proposed policy option appears to
be politically more feasible than a green transition based
only on carbon pricing, and it is more prudent for debt
sustainability than a green transition that relies overly on
green bonds. |
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