Financing the Energy Transition: The Role, Opportunities and Challenges of Green Bonds
The signing of the Paris Agreement in 2015 represented a landmark in global efforts and commitments toward the reduction of carbon emissions. The achievement of this ambitious goal in maintaining temperature increases below 1.5 °C by 2050 necessitates strong global coordination and structural rethinking in many areas such as global trade, supply chain, production organization and sourcing of energy, to name but a few.
While most of the attention and discussion on the topic has focused on the use of renewable energy and technological advances in that respect, less has been said about how to finance this structural change. This project tries to fill this gap and studies which financial instruments have been used and designed for this purpose. In particular, the study focuses on the role played by Green Bonds, a debt-like financial instrument whose proceeds are used to finance “sustainable” projects. This paper works around four pivotal questions: (i) What are Green Bonds and how are they designed? (ii) What is the current status of the market and of the regulatory/policy landscape? (iii) What are the rationale and incentives for firms in using Green Bonds? (iv) What are the current challenges for the efficient functioning of this financing instrument?