Three essays on climate policy and green finance

Abstract

This dissertation contains three chapters that empirically explore the intricate dynamics between state climate policy and financial market risk perception of clean energy investments. The first chapter examines the systematic regional differences in the cost of climate debt measured by green-labeled sovereign bond pricing. It applies the coarsened exact matching technique on a bond-level panel data obtained from Bloomberg, spanning 44 countries between 2017 and 2023. Findings reveal that while the absolute price of sovereign green bonds is higher for emerging economies, it is substantially discounted relative to conventional bonds, particularly in volatile conditions. The study prescribes the suitability of sovereign green bonds as a public green finance instrument for emerging economies. The second chapter uses the 2022 Inflation Reduction Act (IRA) as a natural experiment to assess how a major climate policy shapes climate transition risk. It analyzes extended equity price reactions of U.S. based renewable energy firms to the IRA, using financial news from 2022 to 2023 and natural language processing for sentiment analysis. A dynamic difference-in-differences model reveals an initial stock price surge followed by a gradual reversion, indicating investor reassessment due to implementation frictions and policy uncertainties. The study highlights adaptive market behavior in response to climate policy signals and evolving investor expectations. The third chapter examines drivers of compositional shift in public-private partnerships (PPPs) towards renewable energy from 1996 to 2023 across 72 developing countries. Using a novel dataset combining World Bank PPP data with institutional and policy indicators, it applies a static Tobit and a dynamic GMM model. Results show that renewable PPP uptake is shaped by integrated policy environments. However, public investment, international support, and targeted policy tools consistently promote renewable adoption. While middle-income countries benefit from market and regulatory instruments, low-income countries face the problem of inadequate public finance to support high risk projects. The transition is path-dependent, highlighting the need for sustained and targeted government strategies.