Sydney Institute of Technology: "Reducing Carbon Emissions Can Lower Government Borrowing Costs"

If Carbon Emissions Increase by 1%P, Government Bond Yields Rise by 0.26%P
If Renewable Energy Consumption Increases by 1%P, Yields Decrease by 0.008%P

[Photo by AP Yonhap News]

[Asia Economy Reporter Park Byung-hee] An analysis report has been released showing that reducing carbon emissions lowers the government's borrowing costs.

On the 24th (local time), according to Bloomberg News, the University of Technology Sydney (UTS) in Australia, together with two asset management firms, published a report analyzing the correlation between carbon emissions and government bond yields. UTS and the asset managers analyzed data from 23 advanced countries and 16 developing markets from 2000 to 2019. The analysis included data on carbon dioxide emissions, profits generated from natural resources, renewable energy consumption, and also examined macroeconomic indicators such as gross domestic product (GDP) and inflation to analyze their impact on 10-year government bond yields and spreads.

The analysis showed that in advanced countries, a 1 percentage point increase in carbon emissions raises the 10-year government bond yield by 0.26 percentage points, while conversely, a 1 percentage point increase in renewable energy consumption lowers the bond yield by 0.008 percentage points, according to UTS. In developing countries, although an increase in carbon emissions also raised bond yields, bond yields increased even when renewable energy consumption rose.

UTS explained that the differing results in developing countries are because investors holding bonds from these countries prioritize development and economic growth over climate change goals.

UTS emphasized that increasing eco-friendly energy consumption is essential to reduce government borrowing costs. Climate change significantly affects government bond yields, and advanced countries lagging in achieving environmental goals will face difficulties due to rising borrowing costs.

Many advanced countries are pursuing eco-friendly policies aiming for carbon neutrality by 2050. UTS analyzed that under the worst-case scenario of a disorderly transition to a green economy to meet climate change goals, the probability of national default by 2050 is extremely high for some advanced countries. Australia and South Africa were estimated to have a default probability of 99.8%. Other countries with high default probabilities include Poland (99.7%), Japan (99.4%), Italy (99.1%), Portugal (99.0%), and Greece (98.4%).

On the other hand, even in the worst-case scenario, the default probability for the United States was only 0.4%, with Canada (0.2%), Germany, France, and the United Kingdom (all 0.1%) also showing low default risks.

Laura Ryan, head of research at Ardea Asset Management, who conducted the study with UTS, stated, "This study confirmed that climate change is a risk factor, but bond issuers and governments have not yet recognized it as such," adding, "This is a major mistake."

This content was produced with the assistance of AI translation services.