Green bonds efficiency and renewable energy: Insights from the Covid-19 pandemic

This study investigates the efficiency of green bonds as a financial instrument for promoting renewable energy production, with a specific focus on their performance during the Covid-19 pandemic. Using a sample of 55 countries from 2014 to 2022 and employing the Fully Modified Ordinary Least Squares (FMOLS) model to address non-stationarity and cointegration of variables, we find that green bond issuance positively impacts overall renewable energy generation. However, when examining specific sources of green energy, we observe that wind energy benefits the most from green bond financing, while estimates show only marginal significance for hydro energy and no significance for solar energy. Finally, we find that the efficiency of green bonds diminished during the Covid-19 pandemic, but this effect was not uniform across all energy sources. The main implications of this research suggest that while green bonds are efficient tools for promoting wind energy, alternative financial tools are necessary to stimulate growth in the solar and hydro energy sectors. Additionally, the negative effect of Covid-19 highlights the need for more resilient financial instruments during economic crises.