GHG emission reductions resulting from the use of financial instruments aiming to support the development of decarbonising solutions are essentially related with the real capacity of these solutions to contribute to the GHG emission reduction objective, including on one hand upstream emissions, on the other considering long term impacts (EVs for instance increase their benefit year by year due to deployment of green electricity, while NG and other fossils have a worsening trend in upstream GHG emission due to the need of tapping harder and harder to extract resources).The GHG emission savings are therefore dependent on the design of the criteria defining the scope of application of the financial instruments.
In the case of green bonds, the taxonomy developed to characterize the green bond market, as well as the reporting and verification requirements needed to certify bonds as green are the key instruments guaranteeing compatibility with GHG emission mitigation objectives.
GHG emission reductions resulting from the use of financial instruments aiming to support the development of decarbonising solutions are essentially related with the real capacity of these solutions to contribute to the GHG emission reduction objective, including on one hand upstream emissions, on the other considering long term impacts (EVs for instance increase their benefit year by year due to deployment of green electricity, while NG and other fossils have a worsening trend in upstream GHG emission due to the need of tapping harder and harder to extract resources).The GHG emission savings are therefore dependent on the design of the criteria defining the scope of application of the financial instruments.
In the case of green bonds, the taxonomy developed to characterize the green bond market, as well as the reporting and verification requirements needed to certify bonds as green are the key instruments guaranteeing compatibility with GHG emission mitigation objectives.
Financial instruments relying on public funding and/or obligations, from the public sector, to assume risks to mobilise private sector investments, need to be financed by government funds.
For project-based green bonds, investors take a portion of the completion and/or performance risk of the project itself. In the case of refinancing green bonds, capital is raised on the strength of the entire balance sheet of the issuer and the optimal level of debt it can support.
Besides the main benefit of the generation of momentum for investments on climate-friendly transport solutions, key co-benefits of the development of financial instruments that support decarbonising solutions (not only in transport) are well aligned with benefits identified by the EU Technical Expert Group (TEG) on sustainable finance for green bonds. These include the following:
• Visibility and awareness on sustainability projects of both public and private sector.
• Accelerating the emergence of definitions of green eligibility and their transparent comparison, having potential positive fall-backs beyond the financial markets (e.g. to define criteria relating with the environmental characteristics of vehicles that could be applied to minimize emissions from transport through access regulations and pricing schemes).
• Reducing the scale of carbon-intensive assets that risk becoming “stranded” (i.e. unusable) and their negative effect on the economy.
The main potentially adverse/negative effects relate to failures in the definition of the criteria defining the scope of application of the financial instruments, for example because of adverse publicity relating to financial support given to activities that fail to be effective in reducing GHG emissions.
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