Green Bonds for low-carbon energy transition and global climate funding? Asbjørn Torvanger CICERO Workshop on “Innovative solutions for climate finance” CIRED and IASS Potsdam, CIRED, Paris, 8-9 July 2014

What is a Green Bond? A bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest and/or to repay the principal at a later date (from Wikipedia) Bonds are suited for climate change projects: Provide up-front capital for infrastructure projects Guaranteed returns are attractive to large institutional investors A Green Bond (GB): Supports sustainable development, low-carbon growth and climate change resilience GB motivation for investors: social responsibility; image building; prepare for future markets

Technologies/project types; review  Reduced emissions of carbon dioxide; improved energy efficiency; higher share of renewable energy sources  Waste treatment and recycling; Transportation infrastructure; Sustainable (energy-efficient) buildings; Water management; Climate risks and adaptation  Red flag – avoid: Long-term ‘lock-in’ effects; fossil fuel based energy production  A second opinion: An independent environmental quality review of a green bond issuer’s framework for selecting projects and investments to be eligible for green bond funding. (CICERO has a major share of this market)

Actors

Green bonds on target to double in 2014

Big green potential $100 billion = 0,13% of total bond market

Green Bonds Low carbon energy transition Public climate finance Private climate finance Global climate agreement EU Green Climate Fund De- risking * Impact * Greenness

Green Bonds: Greenness and impacts GB as bottom-up based nudging. Exist and is fast growing! But do GB make a difference? Is the BaU GHG emission path bent downwards? What are impacts of GB on sustainability – e.g. in terms of low-carbon energy transition? (Deep green, medium green, light green?) How do investors react to green labeling in the bond market? Will reduced investments in brown activities increase profitability and attract other investors, thus evaporating effect on GHG emissions?

Green Bonds: Contribute to global climate finance? o Linking public and private funding: Big gap in required global funding – combine with - Large private GB funding o Can GB facilitate private climate financing, e.g. of the Green Climate Fund? o How can governments incentivize private sector finance towards climate finance (especially in DCs)? o Is government de-risking efficient and feasible? What risk- mitigation instruments to use? o How can the Green Climate Fund mobilize private sector finance, e.g. through GB?

Extra slides

Green bonds on target to double in 2014 Q1 WB goal = 20 Bill. USD