The European Carbon Bond Premium

Dirk Broeders, Marleen de Jonge and David Rijsbergen

Working Papers from DNB

Abstract: We document a positive and statistically significant carbon premium that investors demand for investing in bonds issued by high carbon-emitting firms in the euro area. Over the entire sample period, we estimate that doubling a firm’s Scope 1 and 2 emissions results in an average increase of 6.6 basis points in the spread on the firm’s issued bonds. In addition, we find that the carbon premium has increased since 2020 and the effect reached 13.9 basis points by early 2022. These results suggest that European companies with high levels of carbon emissions are experiencing progressively higher financing costs. Our research also reveals a distinctive carbon premium term structure, rising with longer maturities. Interestingly, over time the term structure flat tens, suggesting investors’ confident anticipation of ongoing carbon pricing in the European Union at a stable pace.

Keywords: Carbon Premium; Carbon Premium Term Structure; Climate Change; Climate Transition Risk (search for similar items in EconPapers)
JEL-codes: G12 G15 G23 Q51 Q54 (search for similar items in EconPapers)
Date: 2024-01
New Economics Papers: this item is included in nep-eec, nep-ene, nep-env, nep-eur and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:798

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