Europe, China Trigger Stunning Growth in Green Bonds Market

Green bonds, seen as a key way to fund low-carbon projects, have been subject to extraordinary global growth since they were first issued in 2007.

A new European Commission study released on Friday (2 December) says the issuance of green bonds globally has risen from $2.6 billion during 2012 to $74.3 billion in 2016 so far.

European and Chinese issuers make up the largest share of the climate-aligned bonds market globally according to the EU study. Within the European Union, France and the UK are the biggest issuers followed by Germany and the Netherlands.

Clean Energy For All Europeans

A major financial firm recently already announced that this year’s total issuance of green bonds could approach as much as $100 billion globally, bringing the sector within striking distance of doubling bonds issuance in one year – an increase that previously took nine years.

The study comes hot on the heels of the EU Commission’s Clean Energy for All Europeans proposal, which would need an extra €177 billion annually from 2021 onwards in order for European countries to reach the targets they committed to under the Paris Agreement on climate change.

“The EU has positioned itself well, to allow companies and municipalities to be among the frontrunners in the expanding green bond market,” EU environment Commissioner Karmenu Vella said in a statement about the report.

Financing The Zero Carbon Economy

The European Commission says that the green bond market is likely to continue to grow, attracting more diverse issuers and investors and will become a source of long-term green financing next to bank lending and equity financing.

With almost 50 per cent of issuances globally, the renewable energy sector was the main beneficiary of green bonds in 2015. Energy efficiency counted for some 20 per cent, followed by low-carbon transport, the water sector and waste management.

Developing Nations

But the EU strategy doesn’t just focus on Europe. Some of the World’s richest countries agreed in the Paris Agreement that support from richer countries to enable developing nations to make the shift to a zero-carbon economy is also seen as a crucial.

Carbon emissions from countries like India, for example, could spin out of control while their growing economies demand increasing amounts of cheap energy.

One of the countries where the EU offers support is Mexico, where Mexico City hopes to issue its first green bond assisted by Climate-KIC, the EU’s public-private climate innovation partnership.

The study, meanwhile, also looked at some of the bottlenecks for growth in the green bond market and identified a “lack of green project pipelines” as well as the absence of a clear green bonds definition and framework.

Climate-KIC is testing out new ways to define and structure green bonds and finance green projects through its Low Carbon City Lab.

To find out more about the opportunities of green bonds, visit Climate-KIC’s Low Carbon City Lab.