De-risking of Green Investments through a Green Bond Market

16666 9 91339 2 264486 document 91339 WP-20-014.pdf application/pdf b83c850af64fc7a141ce8554dada3a26 MD5 1881948 2020-08-31 08:03:14 https://pure.iiasa.ac.at/id/eprint/16666/1/WP-20-014.pdf 16666 1 1 application/pdf text en public cc_by_nc_4

WP-20-014.pdf

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http://eprints.org/relation/isVersionOf https://pure.iiasa.ac.at/id/document/91339 http://eprints.org/relation/isVolatileVersionOf https://pure.iiasa.ac.at/id/document/91339 http://eprints.org/relation/issmallThumbnailVersionOf https://pure.iiasa.ac.at/id/document/91339 archive 353 disk0/00/01/66/66 2020-08-31 08:06:19 2021-08-27 17:33:28 2020-08-31 08:06:19 monograph show 2 Braga J.P. Semmler W. Grass D. 2248 Elena Rovenskaya, Program Director Advanced Systems Analysis De-risking of Green Investments through a Green Bond Market – Empirics and a Dynamic Model pub prog_asa green bonds, innovation, climate ﬁnance, de-risking A substantial increase of green investments is still required to reach the Paris Agreement’s emission targets. Yet, capital markets to expedite green invest-ments are generically constrained. Literature has shown that governments could de-risk such investments. Empirical beta pricing and yield estimates reveal some public involvement in the green bonds market, especially for long ma-turity bonds. We provide empirical evidence that Governments and Multilateral organizations can de-risk green investments by supporting the issuance of green bonds in contrast to private green bonds - that show higher yields, volatility and beta prices - and conventional energy bonds, that are more volatile due to oil price variations. Since lower betas also mean lower capital costs, we use those empirical results and run a dynamic model with two types of ﬁrms, modeling the economic behavior of innovators (renewable energy ﬁrms) and incumbents (fos-sil fuel ﬁrms). The simulations of our model show that de-risked interest rates help to phase in renewable energy ﬁrms in the market and avoid a sharp debt increase. However, when the new entrants carry negative pay-oﬀs for a longer time, it might not be suﬃcient to keep the debt low and to avoid a shake-out in the market. Subsidies and carbon taxation can complement the role of the de-risked interest rates and expedite the energy transition. Beside deterministic model variants, we also explore a stochastic version of the model. 2020-08-31 published WP-20-014 3151 public working_paper Laxenburg, Austria FALSE no info:eu-repo/semantics/book