With only 24% of greenhouse gases subject to a price and net carbon pricing of only $4 per ton of CO2, the world is quickly depleting the carbon budget needed to limit global warming to 1.5 degrees Celsius. Climate finance is essential for achieving the Paris Agreement’s goals, but effectively scaling up investments requires understanding how financial markets interact with these regulations and addressing barriers like green-washing and misaligned incentives.
In this Policy Research Talk, Federica Zeni will highlight new research insights that can help global stakeholders design better regulatory and financial mechanisms to reduce carbon emissions and promote sustainable investments. Recent literature tackles three critical questions around green finance:
1. Carbon-contingent financing like sustainability-linked bonds can potentially serve as a substitute for carbon taxes—but may do so at the cost of reducing political support for carbon taxes. How can governments and other stakeholders manage this trade-off?
2. Global banks are major players in many low- and middle-income countries. How do they respond when host countries increase their commitment to climate policies?
3. What factors are driving the growth of sustainability-linked debt, a relatively new class of green debt instruments that first emerged in 2018 alongside more established instruments like green bonds?
In answering these questions, Zeni will also point to ways that policy makers and regulators can better address the complex trade-offs involved in designing more effective green finance. : World Bak
