Right as I wrapped up the blog on financed emissions, this article from Bloomberg popped up that offers some potentially major support for the idea of trading financed emissions:
“The credit market’s appetite for high-carbon companies will soon be put to the test, with around $3.2 trillion of debt from commodities and utilities issuers due to be refinanced over the coming years. The figure represents more than half of all outstanding debt from carbon-intensive sectors and equates to a refinancing need of about $600 billion each year through 2030, according to findings provided by London Stock Exchange Group Plc. The issuers analyzed ‘may struggle to refinance maturing carbon-intensive debt,’ LSEG said. And if they do, they might ‘have to accept that investors may look for higher risk premia to compensate for taking on growing transition risk’…
Refinancing risk will also become a challenge for banks, said Samu Slotte, global head of sustainable finance at Danske Bank A/S. Oil and gas companies pose minimal credit risk in the short term; but in the longer term — if the pool of lenders willing to finance a high-carbon company starts to shrink — the remaining banks will have little choice but to roll over the company’s debt or potentially be saddled with losses, he said.”
Reducing credit/refinancing risk for this large a pot of money provides quite an incentive for financial engineering innovations – good or bad. I don’t have warm and fuzzies that trading financed emissions is a good thing, but Wall Street would love to at least try. It just feels like it could create perverse incentives to generate more emissions to trade for more money.
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