Are Green Bond and Carbon Markets in Europe complements or substitutes? Insights from the activity of power firms

Yves Rannou, Mohamed Boutabba () and Pascal Barneto ()
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Mohamed Boutabba: EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne - Université Paris-Saclay
Pascal Barneto: IAE - IAE BORDEAUX - Université Montesquieu - Bordeaux 4, IRGO - Institut de Recherche en Gestion des Organisations - UB - Université de Bordeaux - Institut d'Administration des Entreprises (IAE) - Bordeaux

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Abstract: This paper studies the interactions between the European carbon and green bond markets from the lens of the European power firms' trading activity over an eight-year period (2013-2020). Those power firms have used two segments of carbon markets differently: one for shortterm hedging and speculative purposes and one for long-term hedging needs. The second one is found to have an informational advantage over the other and complements it. Interestingly, we show that power firms have used the green bond market as a complement to the carbon futures market used for their short-term hedging or speculative activities. Instead, they have employed the green bond market as a substitute for the carbon futures market used for their long-term hedging activities since 2018. Taken together, our results shed light on a pivotal change in the behaviour of European power firms that progressively abandon the carbon market to issue more green bonds in order to finance their transition to clean energy production systems.

Keywords: Futures Hedging; Green Bond Market; Power firms; Substitute; Complement; Carbon Market (search for similar items in EconPapers)
Date: 2021-12-01
New Economics Papers: this item is included in nep-ene, nep-env and nep-hme
Note: View the original document on HAL open archive server: https://hal.science/hal-03435879v1
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Citations: View citations in EconPapers (24)

Published in Energy Economics, 2021, 104, pp.105651. ⟨10.1016/j.eneco.2021.105651⟩

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Journal Article: Are Green Bond and Carbon Markets in Europe complements or substitutes? Insights from the activity of power firms (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03435879

DOI: 10.1016/j.eneco.2021.105651

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