De-risking of green investments through a green bond market – Empirics and a dynamic model

A substantial increase of green investments is still required to reach the Paris Agreement’s emission targets. Yet, capital markets expedite innovative are generically constrained. Literature has shown that governments could de-risk such investments. Empirical beta pricing and yield estimates reveal some public involvement in bond market, especially for long maturity bonds. We provide empirical evidence Governments Multilateral organizations can by supporting issuance bonds contrast private - show higher yields, volatility prices conventional energy bonds, more volatile due oil price variations. Since lower betas also mean costs, we use these results run a dynamic model with two types firms, modeling economic behavior innovators (renewable firms) incumbents (fossil fuel firms). Our reveals de-risked interest rates, from cost side, mark-ups profit flows, market improve new entrants’ performance. As normally have low mark-ups, inducing flows costs allows better default risk control debt repayment which keep firms longer period time maintain levels. Subsidies carbon taxation complement role rate transition.