Johannes Hahn, commissioner for the EU budget, has told Financial Times that the European Commission is studying the possibility of issuing gr18een bonds as part of the 750 billion euros plan to recover from the current pandemic crisis. This comes in addition to Ursula Von der Leyen’s announcement of the raise in the goal of carbon emission cut to 55% off the emission levels of 1990. (Khan, 2020)
Green bonds are bonds, generally certified by third parties, in which the issuer compromises itself to apply the funds in environmentally enhancing investments. At the current stage, such financing instruments are mainly used by public entities, as a complement to carbon pricing. (Segal, 2020). In fact, “less than 5 percent of emissions covered under explicit carbon pricing initiatives is currently priced at a level that would be consistent with the Paris Agreement” (Heine et al, 2020). Comparing to carbon pricing, which research shows that in many countries is eroded by inflation, green bonds provide a more equitable share of the burden of the costs across generations, making them more politically feasible (Heine et al,2020). Also, they allow the government to shape the market instead of just fixing it, considering that research shows that initial state intervention can have an impact in crowding in private agents into climate enhancing markets (Heine et al, 2020).
Will the EU take this opportunity to accelerate climate action?
- Heine et al.(2020). Financing Low-Carbon Transitions through Carbon Pricing and Green Bonds, World Bank Group, 4-9. Retrieved from http://documents1.worldbank.org/curated/en/808771566321852359/pdf/Financing-Low-Carbon-Transitions-through-Carbon-Pricing-and-Green-Bonds.pdf
- Segal,T.(2020, September 13). Green Bond. Retrieved from https://www.investopedia.com/terms/g/green-bond.asp
- Khan,M. (2020,September 13).EU explores green bonds as part of €750bn borrowing spree. Financial Times. Retrieved from https://www.ft.com/content/7a893f6d-08c9-426c-8f19-aa19d434b018