THE ROLES OF GREEN BONDS AND RENEWABLE ENERGY IN REDUCING CARBON EMISSIONS

Abstract

The growing urgency of achieving sustainable development goals, particularly reducing carbon emissions, has highlighted the need for an effective financial instrument to channel capital towards green projects. Although green bonds represent a promising new tool forfinancing environmentally friendly initiatives, research on their direct environmental impact is still ongoing. This study examines the relationship between green bond issuance and carbon emissions, utilizing data from 72 countries between 2014 and 2020. Employing the generalized methods of moments model and rigorous robustness tests, the study finds a statistically significant negative association between green bonds and carbon emissions per capita. However, the impact varies across countries based on their income levels and existing renewable energy deployment. Notably, the effects of green bonds on carbon dioxide emissions per capita weakenin nations with higher income and renewable energy use, suggesting potential diminishing returns from green investment. These findings imply that policymakers should prioritise the development of green bond markets while tailoring policies to optimise environmental benefits, considering variations in clean energy infrastructure. Beyond the empirical contribution, this study advancesthe theoretical discourse in green finance by highlighting green bonds as a distinct mechanism through which financial markets can influence environmental outcomes. By quantifying the environmental impact of green bonds and providing nuanced policy recommendations, this study contributes to a more informed approach to financing sustainable development.