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Green Bond Market vs. Carbon Market in Europe: Two Different Trajectories but Some Complementarities

In: Recent Trends in Financial Engineering Towards More Sustainable Social Impact

Author

Listed:
  • Yves Rannou
  • Pascal Barneto
  • Mohamed Amine Boutabba

Abstract

Europe was the first continent to create concomitantly a large-scale carbon market to reduce the level of carbon emissions and to create a green bond market to finance the transition to low-carbon economies. In this chapter, we study the respective roles of these instruments, their price trajectories, their interaction, and their potential complementarities over a six-year period (2014–2019). We enrich the literature on environmental markets in several respects. First, we report significant short-run and long-run persistence of shocks to the conditional correlation between the European carbon and the European green bond markets. Second, we detect bidirectional shock transmission effects between those markets but no significant spillover effects. Taken together, these results suggest that a green bond issued in Europe may be used to hedge against the carbon price risk.

Suggested Citation

  • Yves Rannou & Pascal Barneto & Mohamed Amine Boutabba, 2022. "Green Bond Market vs. Carbon Market in Europe: Two Different Trajectories but Some Complementarities," World Scientific Book Chapters, in: Constantin Zopounidis & Carine Girard-Guerraud & Karima Bouaiss (ed.), Recent Trends in Financial Engineering Towards More Sustainable Social Impact, chapter 4, pages 67-94, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811260483_0004
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    More about this item

    Keywords

    Innovation; Equity-Crowdfunding; Capital Structure; Credit Default Swap; Machine Learning: Green Bonds; Impact Bonds; Shareholder Engagement; ESG; Systemic Risk; Sharing Economy; Impact Accounts;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F3 - International Economics - - International Finance

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