Green Bond market vs. Carbon market in Europe: Two different trajectories but some complementarities

Yves Rannou, Pascal Barneto () and Mohamed Boutabba ()
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Pascal Barneto: Universite Montesquieu - Bordeaux IV Droit, sciences sociales et politiques, sciences economiques et de gestion, IRGO - Institut de Recherche en Gestion des Organisations - UB - Université de Bordeaux - Institut d'Administration des Entreprises (IAE) - Bordeaux
Mohamed Boutabba: EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne - Université Paris-Saclay

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Abstract: Europe has been the first continent to create 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 concomitantly. 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, significant short-run and long-run persistence of shocks to the conditional correlation between the European carbon and the European Green bond markets are reported. Second, we detect bi-directional 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.

Keywords: Green Bond; European Allowances (EUA); Spillover effects; Asset Complementarity (search for similar items in EconPapers)
Date: 2020-11-09
New Economics Papers: this item is included in nep-ene and nep-env
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