GLOBE-Net, August 20, 2013 – A number of multi-lateral financial institutions, national and municipal governments have begun issuing a new category of “Green” or “Climate” bonds as a way of raising financing for clean energy development and deployment.
Just as countries or municipalities finance their established infrastructure, roads and bridges and airports with bonds, the clean energy sector is now also being included. In 2012, the global climate bond market doubled to $346 billion dollars.
The market is moving from an emerging industry strategy that was driven solely by the need to reduce technology and production costs, to one that reduces risk.
See GLOBE-Net article “Will Climate Bonds become the new way to finance sustainable development?“
Climate bonds enable individual projects, with all their unique risks and exposures to be pooled, reducing the cost of debt and making renewable energy projects more competitive.
As the cost of capital is one of the primary detriments of project costs, by pooling and securitizing renewable energy projects, the project developers create a more recognizable product that investors can buy, and one that can be bundled into larger offerings, making it possible for larger funds to participate.
As of 2012, Canada accounted for three percent of the global climate-themed bond market with $6.5 billion deployed, largely focused on energy and transportation.
The Canadian National Railway is the largest domestic issuer at $3.4 billion. The level of green bond issuance for 2013 is expected to easily surpass the 2012 levels as there are more than8,500 megawatts in renewable energy projects at various stages of development. Most of these projects are based in British Columbia (BC), Ontario and Quebec.
‘Financing the Urban Revolution – Didn’t You Get The Memo?’ will be a major topic of discussion at GLOBE 2014, the next in the celebrated GLOBE Series of Conferences and Trade Fairs on the business of the environment taking place in Vancouver Canada, March 26-28, 2014. Reserve your place now. Check here for more details.
Currently, no Canadian provincial governments have issued green bonds, although proposals have been made. The potential for issuance by municipalities is also considerable, particularly given their significant infrastructure needs and the potential to amplify the work of initiatives like the Green Municipal Fund.
Adapted from PICS Climate News Scan – 20 August 2013, by: ISIS Research Centre, Sauder School of Business, in partnership with PICS. UBC Authors: Justin Bull, Liz Ferris, Chanda Brietzke, Ashley Lowcock, James Noble