Some $34 billion in bonds labeled as green have been sold so far in 2014, three times as much as last year. Some experts predicting that as much as $100 billion of green bonds will be sold in 2015. These bonds — issued by governments, companies and international financial institutions like the World Bank — will help to finance solar and wind energy, hybrid cars, efficient buildings, cleaner waterways.
This sounds like unalloyed good news–and it may be. It’s just hard to know.
Today, the YaleEnvironment360 website posted my story about green bonds, headlined with a question: Can Green Bonds Bankroll A Clean Energy Revolution? Again, the answer is maybe. That unsatisfying, perhaps, but that’s the way it is.
That’s because, for the moment, a green bond is any bond that an issuer decides to label as green. Big banks and NGOs are working to set stricter standards, but they will take a while to arrive. So, for example, corn ethanol, nuclear power and methane capture while fracking could all be deemed green.
The bigger question, though, is whether green bonds are financing projects that, without them, would not get done. Again, that’s hard to say. But if all we are getting with green bonds are labels on bonds that would have been issued anyway, we’re wasting our time.
That said, there’s potential here–at heart, the potential to attract new money to finance low-carbon infrastructure. So the boom is green bonds is worth watching.
Here’s how my story begins:
Looked at from one angle, climate change is an infrastructure problem. To limit global warming to 2 degrees C and avoid the worst effects of climate change, about $44 trillion will need to be invested in low-carbon projects like wind farms, solar panels, nuclear power, carbon capture, and smart buildings by 2050, the International Energy Agency estimates. That’s more than $1 trillion a year — roughly a four-fold jump from current investment levels.
Where’s the money going to come from? Maybe from green bonds, say bankers and environmentalists alike. Green bonds, which are also known as climate bonds, are fixed-income investments that are designed to finance environmentally friendly projects. Pioneered by international development banks — the European Investment Bank issued the first climate bond in 2007, followed a year later by the World Bank — they are today issued by state and local governments (Massachusetts, Hawaii, New York, and the cities of Stockholm and Spokane, Washington, among others) and by big companies (Bank of America, Unilever, and the French utility GDF Suez).
Uses of the bond proceeds are varied. The World Bank sold green bonds to raise funds for geothermal energy in Indonesia and free compact fluorescent bulbs for the poor in Mexico. Massachusetts raised money to clean up a superfund site. Energy company EDF’s green bond financedwind farms in France, and Toyota used the proceeds from a green bond to make loans to American consumers who buy hybrid cars.
The story goes on to explain why “green bonds may not be all they’re cracked up to be.” You can read the rest here.