UNIVERSITA’ DEGLI STUDI DI PARMA
DOTTORATO DI RICERCA IN
"Economia e Managemen dell’Inno azione e della Sos enibili à"
CICLO XXXIV
in CO-TUTELA con
Uni e si à degli S udi di Fe a a
“The ole o inancial and ca bon ma ke s in he sus ainabili y ansi ion”
Coo dina o e:
Chia .mo P o . S e ano Azzali
Tu o e:
Chia .mo P o . Massimiliano Mazzan i
Do o ando: Ma co Qua osi
Anni Accademici 2018/2019 – 2020/2021
“And he e's mad luck and bad luck
And wha I could' e had luck
And i 's go e ned by blagga ds
In he hills a away
And he e's obbe s and uses
And a housand excuses
Fo he ha d li e o I an MacC ae”
“The Ha d Li e o I an MacRae”- Ba leyjuice
Index o con en s
In oduc ion ....................................................................................................................................................... 6
Chap e 1 – “Emission T ading in a high dimensional con ex : o wha ex en ca bon ma ke s a e in eg a ed
wi h he b oade sys em?” .............................................................................................................................. 12
In oduc ion ................................................................................................................................................. 12
EU ETS- Li e a u e Re iew ........................................................................................................................... 15
E ec i eness o he policy ....................................................................................................................... 16
Da a and me hodology ................................................................................................................................ 17
Da a ......................................................................................................................................................... 17
Me hodology ........................................................................................................................................... 20
Resul s and Discussion ................................................................................................................................. 21
Conclusions .................................................................................................................................................. 23
Appendix 1 ................................................................................................................................................... 25
Appendix 2 ................................................................................................................................................... 25
Appendix 3 ................................................................................................................................................... 25
Chap e 2- Clus e ing en i onmen al pe o mances, ene gy e iciency and clean ene gy pa e ns: a
compa a i e s a ic app oach ac oss EU Coun ies .......................................................................................... 27
In oduc ion ................................................................................................................................................. 27
The IPAT ela ionship ................................................................................................................................... 29
Clus e ing ..................................................................................................................................................... 29
Da a and Me hodology ................................................................................................................................ 30
Resul s ......................................................................................................................................................... 31
2008 ......................................................................................................................................................... 32
2013 ......................................................................................................................................................... 33
2018 ......................................................................................................................................................... 33
Discussion .................................................................................................................................................... 33
Conclusions .................................................................................................................................................. 35
Chap e 3 - Financial Inno a ions o Sus ainable Finance: an explo a o y esea ch ..................................... 37
In oduc ion ................................................................................................................................................. 37
A Sus ainable Finance Pe spec i e on Financial Inno a ions ...................................................................... 39
S a e o he a o clima e- ela ed inancial isk.......................................................................................... 41
Renewable ene gy ................................................................................................................................... 41
Biodi e si y loss and ecosys ems dis up ion ........................................................................................... 42
G een inancial inno a ions: ele an examples ......................................................................................... 43
De i a i es ............................................................................................................................................... 44
G een Secu i iza ion ................................................................................................................................ 45
G een co e ed bond ................................................................................................................................ 46
Blockchain ................................................................................................................................................ 47
P i a e and Public Pa ne ships ............................................................................................................... 47
Mic o inance and c owd unding ............................................................................................................. 48
Discussion and Conclusions ......................................................................................................................... 49
Conclusions ...................................................................................................................................................... 51
Re e ences ....................................................................................................................................................... 55
Index o Figu es
FIGURE 1 CARBON CYCLE .......................................................................................................................................................... 7
FIGURE 2 CURRENT STATE OF CARBON PRICE INITIATIVES (EMISSION TRADING, CARBON TAX) ................................................................ 13
FIGURE 3 EUROPEAN ALLOWANCE PRICE TREND 2008-2020 ....................................................................................................... 14
FIGURE 4 SPARSITY MATRIX OF ELEMENTWISE HVAR .................................................................................................................. 21
FIGURE 5 IMPULSE-RESPONSE FUNCTION CO2 EMISSIONS ............................................................................................................. 22
FIGURE 6 IMPULSE-RESPONSE RELEVANT COVARIATES .................................................................................................................. 22
FIGURE 7 FORECAST ERROR VARIANCE DECOMPOSITION (SPECIFICATION I) ...................................................................................... 23
FIGURE 8 LAMBA PLOT I-II SPECIFICATION .................................................................................................................................. 25
FIGURE 9 FORECAST ERROR VARIANCE DECOMPOSITION II ............................................................................................................ 26
FIGURE 10 ELBOW CHART FOR THE THREE REFERENCE PERIODS ....................................................................................................... 31
FIGURE 11 GROUPS OF EU COUNTRIES CLUSTERED WITH K-MEDOIDS ALGORITHM ............................................................................. 31
FIGURE 12 AVERAGE VALUES FOR EVERY CLUSTER IN THE THREE REFERENCE YEARS ............................................................................. 32
FIGURE 13 FROM PHYSICAL AND TRANSITION RISK TO FINANCIAL STABILITY RISK ................................................................................ 38
FIGURE 14 ECOSYSTEM SERVICES WITH MATERIAL DEPENDENCY FOR BUSINESS SECTORS ...................................................................... 43
FIGURE 15 OPERATING PRINCIPLE OF GREEN FIDC ...................................................................................................................... 46
FIGURE 16 SUMMARY OF FUNDS OF THE EU LONG-TERM BUDGET 2021-2027................................................................................. 52
Index o Tables
TABLE 1 SUMMARY STATISTICS OF THE SERIES ............................................................................................................................. 17
TABLE 2 CORRELATION MATRIX TIME SERIES ................................................................................................................................ 19
TABLE 3 MULTIPLE STATIONARITY TESTS .................................................................................................................................... 21
TABLE 4 SUMMARY OF FINANCIAL INNOVATIVE PRODUCTS AND THEIR FUNCTIONS .............................................................................. 40
TABLE 5 SUMMARY OF TOOLS AND INSTRUMENTS TO FOSTER SUSTAINABLE FINANCE ........................................................................... 43

In oduc ion
“Wa e : 35 li e s, Ca bon: 20 kg, Ammonia: 4 li e s, Lime:1.5 kg, Phospho us: 800 g, sal : 250g, sal pe e :
100g, Sul e : 80g, Fluo ine: 7.5 g, i on: 5.6 g, Silicon: 3g, and 15 o he elemen s in small quan i ies... ha ’s
he o al chemical make-up o he a e age adul body”
Hi omu A akawa, Full Me al Alchemis , Vol. 1
1
Ca bon ep esen s he backbone o li e on ea h. I has he almos unique abili y o o m long chains and
s able ings wi h i e o six membe s. Besides, ca bon dioxide (CO2) is unusually s able, always monome ic (i
emains in a single molecule), and eadily soluble in wa e
2
(F ieden, 1972). Conside ing hose cha ac e is ics,
ca bon, oge he wi h he o he i e elemen s (i.e., Oxygen, Ni ogen, Phospho ous, and Sulphu ), can be
de ined as one o he building blocks o li ing ma e (F ieden, 1972). Mos o he ca bon in he Plane is
s o ed in ocks, while he es is embedded in he ocean, a mosphe e, plan s, soil, and ossil uels (e.g., ca bon
sinks). Those sinks con inuously exchange ca bon in wha is known as Ca bon Cycles (e.g., slow and as , see
Figu e 1). Ca bon Cycles p e en all he ca bon om being eleased in o he a mosphe e keeping
empe a u es ela i ely s able, like in a he mos a (Lacis e al., 2010). The Slow ca bon cycle is esponsible
o empe a u e changes be ween ice ages and wa me in e glacial pe iods. The Fas ca bon cycle ega ds
ca bon exchanges among o ganic and ino ganic ma e on Ea h. Fo ins ance, plan s syn he ise ca bon
dioxide o p oduce ene gy and elease oxygen in o he a mosphe e. This mul iple equilib ia among he slow
and as ca bon cycle keep he Plane unde his he mos a can only be pe u bed h ough changes in one
sink. In he pas , hose cycles ha e only changed in esponse o clima e change due o shi s in Ea h’s o bi .
1
Al hough quan i ies may a y acco ding o mul iple ac o s (e.g., sex, age), Hyd ogen (H) and Oxygen (O)
accoun o 88.5% (63% and 25.5%, espec i ely) o he a oms in he human body. I ollows Ca bon (C)
accoun ing o 9.5%, Ni ogen (N) o 1.4% plus o he elemen s (e.g., aces elemen s) which accoun o
no mo e han 0.7% o e all (F ieden, 1972)
2
F ieden (1972) de ines wa e as “ he sol en base o all li e on he ea h” and many o he compounds a e
essen ial o li e on ea h wi h espec o hei esponse o wa e (e.g., solubili y, capaci y o ca ying
elec ici y cha ge in wa e , e ec s on iscosi y o wa e ).
Figu e 1 Ca bon Cycle
Sou ce U.S. Depa men o Ene gy
Indeed, s udies ha e p o ed ha changes in he concen a ion o ca bon dioxide a e one signi ican ac o
o changes in empe a u e and clima e change (Lacis e al., 2010). This includes he amoun o CO2 eleased
due o human consump ion and p oduc ion p ocesses. In ac , since he mid-20 h cen u y, human ac i i ies
ha e become a signi ican ac o igge ing clima e changes, as s a ed by IPCC (2018a). While a e age global
empe a u e has inc eased by 0.85°C om 1880 o 2012, many egions ha e al eady expe ienced a e age
empe a u es abo e 1.5°C. On he o he hand, i ca bon cycles keep he ea h’s empe a u e wi hin a speci ic
ange a ou ing li e on ea h, inc easing CO2 om exogenous sou ces (e.g., human ac i i ies) a e ac o s
pe u bing his kind o equilib ium. In addi ion, acco ding o p ojec ions, esponses o some signi ican
clima e sys em componen s o an h opogenic clima e change mani es o e decades (IPCC, 2021). I is hus
qui e di icul o p edic he consequences in he u u e o cu en changes in he concen a ion o CO2.
Besides, hose egions ha a e o emos esponsible o an h opogenic CO2 emissions do no bea he o al
cos o clima e change. Regions o he wo ld mo e exposed o ulne able o clima e change a e also less
weal hy. This gene a es adap a ion cos s ha migh be e y challenging o sus ain. Recen ex eme e en s
ha e highligh ed how clima e change is now impac ing hose weal hie egions. Las summe , an
ag ome eo ological s a ion in Sicily se he p o isional Eu opean eco d o 48.8° C in Augus 2021. Wi hin July
14-15, 2021, wes e n Ge many and eas e n Belgium ecei ed 100 o 150 mm o ain ( he highes daily ain all
was 162.4 mm a Wippe ü h - Ga denau (Ge many) o e a wide a ea, causing looding and landslides and
200 dea hs. This demons a es how weal hie na ions a e now in he posi ion o bo h mi iga ing and adap ing
o clima e change. On he o he hand, a mo e en i onmen ally and socially aligned de elopmen will be he
bigges challenge o hose coun ies in o he egions showing imp essi e g ow h in hei domes ic
p oduc ion. One ele an hu dle, in economic e ms, o p omo e mi iga ion and adap a ion is ela ed o he
so-called ma ke ailu e o ex e nali ies.
In his pe spec i e, he deba e a he policy le el a ound cha ging a p ice o human-made ca bon emissions
ep esen s a ele an challenge and a necessa y s ep owa ds mo e sus ainable p oduc ion and consump ion
sys ems. Economis s look a ca bon p icing as an o e a ching solu ion o push inno a ion and educe cos s
o he sus ainabili y ansi ion. Ins ead o di ec in e en ions by go e nmen s se ing echnological
s anda ds o educ ion objec i es (e.g., command-and-con ol), ca bon p ice could lead o he ideal le el o
CO2 emissions o he en i onmen wi hou endange ing human h i ing (High-Le el Commission on Ca bon
P icing and Compe i i eness 2018). Ideally, ca bon p ices could p o ide help ul in o ma ion o p oduce s and
consume s on he cos o CO2 emissions gene a ed by hei ac i i ies. Co ec ca bon p icing will p o ide a
mone a y alue o all he economic and non-economic damages ela ed o en i onmen al emissions. In
economic policy, his conside able endea ou e ol es a ound he undamen al concep s o he ca bon ax
and ca bon ma ke s. Those wo policy ins umen s a e he p oduc o wo di e en policymaking app oaches
s emming om he seminal wo k by A hu Pigou (1920) and Ronald Coase (1960). All he specula ion a ound
ex e nali ies o Pigou s ems om di e gences be ween ma ginal p i a e and social ne p oduc s. Pigou
a gues ha sel -in e es beha iou by p i a e indus ialis s will impede ne social p oduc o end o a
maximum. Theo e ically, hose di e gences may e en occu unde simple compe i ion condi ions as unde
monopolis ic o bila e al monopoly. In o he e ms, conside ing a ansac ion be ween wo pa s, he cos s
and bene i s o ha ansac ion may a ec posi i ely o nega i ely ano he ex e nal pa . In some cases,
acco ding o Pigou, di e gences a ise ou o he di e ence be ween owne ship and enancy o du able
ins umen s o p oduc ion. O he same opinion was Ronald Coase in his seminal wo k. He eached his e y
same conclusion b inging case-speci ic examples on owne ship and use o a speci ic esou ce (e.g., he
en i onmen ). A ibu ion o p ope y igh s holds socie y esponsible o p o ec ing public goods (e.g., he
en i onmen ) om being exploi ed. On he o he hand, o Pigou, he di e ence be ween public and p i a e
owne ship was o no p ac ical use i a sys em o ei he axes, g an s, o subsidies would compensa e o he
di e gences. Bo h hose app oaches en ail s eng hs and weaknesses. None heless, while mone izing he
social cos o ca bon is one necessa y s ep o p oceed u he wi h he sus ainabili y ansi ion, he choice o
a speci ic igu e is o he u mos impo ance a he policy le el (Pea ce, 1991). Usually, he discou se a ound
a speci ic mone a y alue o ca bon aims o ind he mos app op ia e c i e ia o minimize he cos s o
achie e a pa icula a ge (e.g., mi iga ion) (Pea ce, 1991). C i ics o he s ic mone iza ion o ca bon p ices
end o look a he ma ke place and i s abili y o p o ide he mos e icien alloca ion o esou ces. On he
o he hand, ma ke s bea hei issues conce ning he equi y and equal dis ibu ion o esou ces. Since no
global-wa ming p ojec ion o esees income loss, sac i icing esou ces in he p esen will likely bene i
communi ies mo e a luen han he poo es oday (Pea ce, 1991). In o he e ms, ac ions aken now in ol e
consequences o u u e gene a ions. Though, any o m o sus ainable ca bon p icing should ideally concei e
dis ibu ional mechanisms o (pa ially) cope wi h inequali ies in he p esen (Eu opean En i onmen Agency,
2017). As al eady men ioned, se ing a p ice o ca bon is a necessa y measu e a he policy le el wi h
epe cussions owa ds p oduce s, consume s, and in es o s. The mo e he p ice mechanism e lec s he
social cos s ca bon dioxide emissions embeds, he mo e i p o ides a be e signal conce ning ma ke agen s'
consump ion, p oduc ion, and in es men decisions.
Rega ding inancing he sus ainabili y ansi ion, p o iding a comp ehensi e amewo k o in es o s will help
shape be e in es men decision-making. As o now, he bulk o he issues o he sus ainabili y ansi ion
o inance boils down o he lack o a conc e e amewo k o de ini ion, coupled wi h a lack o conc e e p oo
o an ad an age o in es in mo e sus ainable asse s (e.g., g eenium) and he lack o a conc e e mechanism
o assessing isks on inancial asse s ela ed o clima e change. As o he la e , in a much b oade
pe spec i e, he mos ecen e o s ha e disen angled he di e en ypes o clima e- ela ed isks and hei
e ec on he o e all inancial sys em (NGFS, 2021). Clima e change a ec s asse alue h ough he
o e a ching classes o physical isk and ansi ion isk. Suppose he o me is ela ed o he isk o loss o
asse alue due o ex eme clima e e en s. In ha case, ansi ion isk e ol es a ound he possible
consequences o he sus ainabili y ansi ion on ce ain kinds o asse s (e.g., s anded asse s). In bo h cases,
he non-linea and unce ain na u e o clima e change along wi h he inc easing likelihood o occu ence o
ex eme clima e e en s (e.g., a - ail p obabili y) ep esen s a conc e e challenge o inancial ac o s. How
he inancial sys em is ying o cope wi h his ele an issue will be disen angled la e on in he disse a ion.
This u he highligh s how deeply in e wined socioeconomic and en i onmen al sys ems and e en s
gene a e consequences on he o he . In he con ex o he policy amewo k, as al eady men ioned, is one
key componen inc easing he unce ain y o in es o s. In mo e speci ic e ms, he unce ain pa hways o
he sus ainabili y ansi ion imply a lack o p ecise es ima ion o u u e adap a ion cos s o in es o s. Indeed,
he ansi ion could happen a di e en paces in di e en egions o coun ies. Fu he mo e, he dep h and
ex en o a u u e sus ainabili y ansi ion a e highly dependen on ac ions aken in he p esen . As one
pi o al policy in e en ion, ca bon p ice ep esen s one key piece o in o ma ion o in es o s o o ien hei
choices. Indeed, Lei ao e al. (2021) ha e p o ed how g een bonds can in luence ca bon p ices (e.g., EU ETS).
In addi ion, wi h he EU Di ec i e Ma ke in Financial Ins umen s Di ec i e II (MiFID II), emission allowances
ha e become inancial ins umen s unde Annex I, Sec ion C (11). I s ansac ion epo ing mechanism has
been e o med a e he 2008 inancial c isis o be s anda dized ac oss coun ies (A . 26-27 Ma ke
In as uc u e Regula ion). In ac , as also con i med by Bo ghesi and Flo i (2018); Palao and Pa do (2017)
om Phase III o he scheme, he EU ETS has p og essi ely esembled a inancial ma ke .
This b ie o e iew highligh ed how ca bon and inancial ma ke s p og essi ely in luence each o he . Co ec
and sus ainabili y-o ien ed unc ioning o hose wo ma ke s is pi o al o he sus ainabili y ansi ion. Indeed,
he o e a ching objec i e o his disse a ion will y o shed u he ligh on speci ic ye c i ical issues ela ed
bo h o inancial and ca bon ma ke s. This wo k is ideally di ided in o h ee chap e s ha ackle a speci ic
issue, building on he e e ence li e a u e and he la es e o ms o he policy amewo k. The p ima y subjec
o analysis will be he Eu opean Union (EU) policy amewo k, ocusing on he clima e, en i onmen al and
inancial a eas, and hei in e ac ions. The EU has always played as a global leade owa ds he pa hway o a
lowe -ca bon economy. While he ca bon ax is only le ied in some o he Membe S a es, om 2005, he
Union has adop ed an EU-wide mechanism o p ice emissions. The so-called Eu opean Emission T ading
Scheme (EU ETS) p o ides a ole model o a unc ioning ca bon ma ke wo ldwide Bo ghesi e al. (2016). I
ep esen s one o he oldes ca bon ma ke s globally, and i co e s almos 40% o he EU GHGs emissions.
Ideally, he i s chap e o he hesis will deal wi h he speci ic issue o he scheme’s e ec i eness in ackling
G eenhouse Gasses (GHG) emissions. A sui able me hodological app oach makes i possible o analyse
in luences o ca bon p ice beha iou (e.g., Eu opean Union Allowance) on CO2 emissions along wi h a b oad
mul i-dimensional se o a iables. The ul ima e aim would be o assess o wha ex en ca bon p ice
beha iou ep esen s a conc e e signal o di e en aspec s ela ed o he socioeconomic-en i onmen
ela ionship (e.g., economy, inance, commodi y, clima e). Conce ning o he con ibu ions in he li e a u e,
his wo k will y o analyse in e ac ions comp ising a b oad se o a iables. This will p o ide a new app oach
o en i onmen al policy analysis, including as many a iables as possible. The mo e echnical aspec s o he
me hodology will be disen angled in he chap e . Wha is wo h men ioning a his s age is ha his speci ic
app oach combines ime se ies econome ics wi h lasso-based me hodologies. The inclusion o lasso-based
egula iza ion o a Vec o Au o eg essi e (VAR) amewo k allows his app oach o deal wi h a spa se se o
a iables (e.g., mul iple a iables o di e en na u e). In e ms o esh pe spec i es on policy e alua ion, he
second chap e p o ides a new angle o analysis s a ing om a well-es ablished amewo k. In his chap e ,
he IPAT (Impac , Popula ion, A luence, Technology) ela ionship will be aken as an analy ical amewo k o
un a clus e analysis on he EU Membe S a es conside ing hei en i onmen al p essu e, ene gy e iciency,
and sus ainable pe o mance sou ces. This app oach made i possible o ind homogenous g oups among he
Membe S a es ega ding en i onmen al pe o mances and ene gy e iciency. In he amewo k o
con e gence o policy objec i es, his chap e will assess o wha ex en Membe S a es a e pe o ming in
line wi h o e all EU objec i es. Thus, he clus e ing algo i hm will be un on da a o h ee di e en e e ence
pe iods in ime o highligh possible changes in he numbe o g oups and composi ion (e.g., compa a i e
s a ic). Indeed, esul s highligh ed cases o he Membe S a es ha ha e imp o ed hei pe o mances o e
ime. Mo eo e , despi e he limi a ions o he me hodology, clus e analysis may p o ide new insigh s on
(en i onmen al) policy analysis applying a da a-d i en app oach. Maybe he key poin o his kind o
app oach is he absence o p e-exis ing hypo hesis on he ela ionship among a iables when unning he
algo i hm. This en ails bo h s eng hs and weaknesses o his class o s a is ical analysis.
The inal chap e o he hesis will p o ide a esh insigh in o one o he mos ecen ields o esea ch and
policy a eas ela ed o he sus ainabili y ansi ion. T adi ionally, he discou se a ound sus ainable inance
da es back o he amous speech by o me go e no o he Bank o England Ma k Ca ney in 2015. A e he
aud, Black S one). One o he poin is ela ed o p ice beha iou ha has no eached a s able end scheme
3
wi h a endency o alloca e mo e pe mi s o a ou hei domes ic indus ial en e p ises du ing he i s
phases (Asian De elopmen Bank, 2015); Bo ghesi e al., 2016). As o policy commi men , Lecuye and
Qui ion (2013); Schusse and Ja ai ė (2018); Shahnaza i e al. (2017) ha e p o ed empi ically ha o he
ins umen s migh be complemen a y o ca bon p ice a he local le el, especially in he powe sec o .
Expec a ions a e mos ly ela ed o isks and unce ain y a he policy le el (ene gy e iciency, echnology)
and he ma ke le el (commodi y p ices) (Bly h and Bunn, 2011). One o he la es , he Ma ke S abili y
Rese e, concei ed a mechanism ha c ea es a co ido o he numbe o allowances ha can be aded in
he ma ke .
Aside om he o e all a ing o he sys em, esea che s ha e been s i ing o ind de e minan s o Eu opean
Union Allowances (EUA). Albe ola e al. (2008); C e i e al. (2012); Aa ola e al. (2013); Koch e al. (2014)
ound ha EUA p ices a e in luenced by wea he ( empe a u e, ex eme wea he e en s) indica o s, o he
commodi y p ices (i.e., oil, gas), indus ial p oduc i i y, inancial ma ke s
4
(e.g., commodi ies). Q. Ji e al.
(2019); Obe ndo e (2009); Soliman and Nasi (2019); Zhu e al. (2018) ha e iden i ied he in luence o
commodi y ma ke s (i.e., coal, gas, oil, elec ici y) and o he ca bon ma ke s. Hi zemann e al. (2015); Eugenia
Sanin e al. (2015) in es iga ed he e ec s o speci ic announcemen s on EUA p ice ola ili y. Despi e he
need o conside he na u e o CO2 beha iou , as s a ed by Che allie (2011b), mos s udies ha e ocused on
he unc ioning p inciples o he scheme.
Resea ch e o s ha e also ied o disen angle he e ec s o emission ading on di e se aspec s. Adop ing a
di -in-di s app oach, Ma in e al. (2018) and Löschel e al. (2019) analyzed he impac o EU ETS on he
economic pe o mance o I alian and Ge man en e p ises, espec i ely. Teixidó e al. (2019) e iewed he
empi ical li e a u e on he e ec i eness o emission ading in os e ing a low-ca bon echnological
ansi ion. Naegele and Zaklan (2019); Koch and Basse Mama (2019) deal wi h ca bon and in es men
leakage po en ially caused by he scheme.
E ec i eness o he policy
Despi e he e ec i e dec easing end in CO2 o e he las decade, B ink and Vollebe gh (2020) no ice i is
p e y ha d o ace he di ec e ec o he EU ETS conside ing he mul iple ac o s in ol ed. The amoun o
emission educ ion migh also be in luenced by unila e al policy in e en ions (Pe ino e al. 2019). Howe e ,
McGuinness and Elle man (2008); Elle man and Buchne (2008); Elle man and Feilhaue (2008); Ande son
and Di Ma ia (2011); Ma in e al. (2016); Dechezlep ê e e al. (2018) highligh ed how EU ETS has been
e ec i e in dec easing emissions in di e en Phases o he scheme using coun y-le el da a. All he s udies
highligh ed a con ibu ion o EU ETS in aba ing emissions, despi e he di icul y o measu ing he
coun e ac ual. Howe e , possible exogenous shocks can unde mine he s abili y pa hway o p ices wi h
consequences o eaching he a ge s (G osjean e al. 2016). Aside om shocks de i ing ou o economic
u moil, Pe ino e al. (2019); Lecuye and Qui ion (2013); Shahnaza i e al. (2017) poin ou o he sou ces can
be acked down o possible con lic ing policy aims be ween he EU ETS and na ional policies (e.g., wa e bed
e ec ). Unce ain y on he policy mix is likely o inc ease acco ding o di e en ansi ion scena ios o a low-
ca bon economy (NGFS, 2019).
3
o a deepe insigh on EUAs p ice beha iou see h ps://www.sendeco2.com/i /p ezzi-co2 o
h ps://www.eex.com/en/ma ke -da a/en i onmen al-ma ke s/spo -ma ke /eu opean-emission-allowances
4
EUAs a e conside ed pa icula ca ego y o inancial ins umen s unde MiFID II Regula ion (Di ec i e
2014/65/UE du Pa lemen eu opéen e du Conseil du 15 mai 2014 conce nan les ma chés d’ins umen s
inancie s e modi ian la di ec i e 2002/92/CE e la di ec i e 2011/61/UE Tex e p ésen an de l’in é ê
pou l’EEE, 2014) pu suan o poin (11) o Sec ion C o Annex I o ha di ec i e. De i a i es o emission
allowances a e lis ed unde poin (4) o Sec ion C o he said Annex.

Da a and me hodology
Da a
A di e se a ay o ime se ies will be employed o pe o m his analysis encompassing he mul iple
dimensions in ol ed. Fo a decade (2008-2019), mon hly da a will be conside ed o he analysis. Da a on
mon hly EUA s ock p ices a e aken om ICAP
5
, SendeCO2
6
and Jiménez-Rod íguez, (2019). Agg ega ed
mon hly CO2 ends ha e been es ima ed om da a on ene gy consump ion (e.g., G oss Inland Deli e ies)
o he 31 Coun ies and eigh uels ( ou p ima y and ou seconda y) om he Eu os a da abase ollowing
he me hodology in Eggles on e al. (2006)
7
(so-called Re e ence App oach). The indus ial dimension, he
Global Index o Real Economic Ac i i ies
8
(e.g., Kilian Index) as concei ed in Kilian (2009) and adjus ed
ollowing Kilian (2019); Kilian and Zhou (2018), will be employed as a be e measu e o economic ac i i y
wi h espec o con en ional indexes (e.g., eal GDP, indus ial p oduc ion). To include he inancial ma ke
side, he EURO STOXX50 index p o ides a composi e measu e o alue o he bigges Eu ozone en e p ises
in he s ock ma ke . The index is designed by STOXX and e ie ed om Yahoo Finance
9
. Fo commodi y
p ices, na u al gas and oil come om he Wo ld Bank Commodi y P ice Da a eposi o y o he Ne he lands
Ti le T ans e Facili y
10
and B en , espec i ely. Elec ici y p ices a e hose o he No d Pool Powe Ma ke
encompassing No he n and Bal ic egions. Clima e and wea he da a a e s o ed in he IEA Wea he Ene gy
T acke , held by IEA and Medi e anean Cen e o Clima e Change (CMCC). As he da abase con ains
coun y-le el da a, he se ies employed has been achie ed by a e aging he alues o he 31 Coun ies unde
he ETS. Clima e/Wea he da a comp ise mon hly a e ages o empe a u es (i.e., min, max, hea index),
ain all (maximum ain all), wind speed (10 m , 100 m ). Table 1 summa izes he main s a is ics o he se ies.
Table 1 Summa y S a is ics o he se ies
S a is ic
Min
Pc l(25)
Median
Pc l(75)
Max
Median
S . De .
kilian_indx
-161.643
-59.844
-30.296
16.326
189.220
-30.296
70.394
b en
30.700
56.745
76.415
108.073
132.720
76.415
26.796
co2
242.407
276.083
297.298
320.205
358.932
297.298
28.483
eua
3.538
5.951
8.195
14.730
26.881
8.195
6.129
hea _indx
-1.041
5.005
10.505
16.824
21.048
10.505
6.408
max_ emp
7.353
13.715
20.834
26.801
31.103
20.834
7.049
5
h ps://icapca bonac ion.com/en/
6
h ps://www.sendeco2.com/i /p ezzi-co2
7
The da ase is a ailable upon eques , o deepe insigh s on he me hodology see (Qua osi, 2020)
8
The index is a ailable in he Kilian’s pe sonal webpage and upda ed mon hly by he Fede al Rese e Bank o Dallas,
see h ps://www.dallas ed.o g/ esea ch/ig ea
9
Fo his wo k i has been decided o use closing p ices.
10
om Ap il 2015, Ne he lands Ti le T ans e Facili y (TTF); Ap il 2010 o Ma ch 2015, a e age impo bo de p ice
and a spo p ice componen , including UK; du ing June 2000 - Ma ch 2010 p ices excludes UK.
o _ ain all
0.052
0.086
0.103
0.113
0.142
0.103
0.018
min_ emp
-14.069
-3.749
1.069
7.751
12.039
1.069
6.823
wind_sp10
2.907
3.292
3.603
3.906
4.535
3.603
0.390
wind_sp100
4.324
4.958
5.538
6.123
7.070
5.538
0.685
na u al.gas_p ice
3.910
6.694
8.800
11.232
15.930
8.800
2.822
np_elec
9.550
28.620
34.125
44.180
81.650
34.125
12.131
s oxx50e
1,976.230
2,678.523
3,033.205
3,367.273
3,825.020
3,033.205
439.376
e3ci
-0.315
-0.045
0.060
0.166
0.417
0.060
0.156
As es s on s a iona i y will be commen ed on la e on (Table 3), he p elimina y analysis p oceeds wi h he
co ela ion ma ix o he se ies.
Table 2 Co ela ion ma ix ime se ies
kilian_indx
b en
co2
eua
hea _indx
max_ emp
o _ ain all
min_ emp
wind_sp10
wind_sp100
na u al.gas_p ice
np_elec
s oxx50e
kilian_indx
1
0.358
0.230
0.653
0.035
0.024
0.055
0.030
-0.011
-0.020
0.347
0.374
0.101
b en
0.358
1
0.273
0.142
0.108
0.122
0.037
0.089
-0.072
-0.085
0.712
0.271
-0.232
co2
0.230
0.273
1
0.115
-0.750
-0.746
-0.079
-0.733
0.655
0.676
0.553
0.409
-0.132
eua
0.653
0.142
0.115
1
0.003
0.009
-0.064
-0.009
0.025
0.021
0.235
0.552
0.163
hea _indx
0.035
0.108
-0.750
0.003
1
0.987
-0.020
0.987
-0.859
-0.880
-0.104
-0.268
0.029
max_ emp
0.024
0.122
-0.746
0.009
0.987
1
-0.083
0.963
-0.867
-0.888
-0.105
-0.253
0.023
o _ ain all
0.055
0.037
-0.079
-0.064
-0.020
-0.083
1
0.005
0.175
0.144
0.035
-0.143
-0.075
min_ emp
0.030
0.089
-0.733
-0.009
0.987
0.963
0.005
1
-0.830
-0.852
-0.102
-0.285
0.029
wind_sp10
-0.011
-0.072
0.655
0.025
-0.859
-0.867
0.175
-0.830
1
0.996
0.112
0.182
0.046
wind_sp100
-0.020
-0.085
0.676
0.021
-0.880
-0.888
0.144
-0.852
0.996
1
0.103
0.197
0.043
na u al.gas_p ice
0.347
0.712
0.553
0.235
-0.104
-0.105
0.035
-0.102
0.112
0.103
1
0.344
-0.399
np_elec
0.374
0.271
0.409
0.552
-0.268
-0.253
-0.143
-0.285
0.182
0.197
0.344
1
-0.153
s oxx50e
0.101
-0.232
-0.132
0.163
0.029
0.023
-0.075
0.029
0.046
0.043
-0.399
-0.153
1
As i is possible o app ecia e (Table 2), he e a e qui e a ew high co ela ions be ween empe a u e and
wind speed. CO2 shows a signi ican bu nega i e co ela ion wi h he empe a u e se and posi i e wi h
indus ial p oduc ion and commodi ies (e.g., na u al gas p ice, oil, elec ici y) o he a iables o in e es .
The e is a ela i ely weak bu posi i e co ela ion wi h EUA p ices and a nega i e wi h he STOXX index. On
he o he hand, EUA p ices posi i ely co ela e wi h he Kilian Index and No d Pool elec ici y p ices. Posi i e
ye weak co ela ion o he inancial dimension and he o he commodi ies. Indeed, conside ing he high
co ela ion o some clima ic a iables (e.g., empe a u es, hea index, wind speed), he model will be
conside ing empe a u e and hea index al e na i ely.
Me hodology
To accoun o he mul iple dimensions o he se ies subjec o analysis, Hie a chical Vec o Au o eg essi e
Model (HVAR) will be employed add essing his high dimensional con ex . This me hodology was i s
in oduced in W. B. Nicholson e al. (2020) as a mo e sui able solu ion o o ecas ing exe cises in high
dimensional con ex s wi h espec o o he app oaches o educe he dimensionali y o ime se ies (e.g.,
co ela ion analysis, ac o models, Bayesian models, scala componen models, independen componen
analysis, dynamic o hogonal componen analysis). HVAR encodes lag o de selec ion in o a con ex
egula iza ion ha simul aneously add esses dimensionali y and lag o de selec ion. Unlike Bayesian models
and lasso-based models, i p o ides in e p e able insigh s on he con ibu ion o each ime se ies on he
o ecas ing exe cise. While aiming a in e p e abili y, HVAR in oduces maximiza ion in lag o de selec ion
dealing wi h inc easing maximal o de . In ac , in o he models, as lag o de inc eases o ecas ing
pe o mances end o deg ade. Lasso-based VAR a e concei ed unde he assump ion he ma ix o he
coe icien in high dimensional con ex is spa se (Song and Bickel, 2011). S a ing om he ma ix
ep esen a ion o a 𝑉𝐴𝑅(𝑝)𝑘model o a se o k ime se ies o leng h T
11
:
𝑌 = 𝑣1⊺+ Φ𝑍 + 𝑈 [1]
Whe e Φ con ols he dynamic dependen o he 𝑖𝑡ℎ componen o 𝑦𝑡 on he 𝑗𝑡ℎ componen o 𝑦𝑡−1. Some
con ibu ions ha e highligh ed how he es ima ion o he leas squa e coe icien ma ix migh be challenging
unless T is la ge. Fu he mo e, o la ge (e en medium) k, he ma ix o he coe icien s is spa se e en wi h
ega ds o he ue Da a Gene a ing P ocess (DGP) (Da is e al. 2012). Some au ho s, as Song and Bickel
(2011), ha e decided o implemen con ex penal y mechanisms (e.g., Lasso and G oup Lasso). In his
amewo k, HLag builds on hie a chical g oup lasso modelling, p o iding a s uc u e o he spa se ma ix wi h
di e en deg ees o lexibili y (i.e., Componen wise, Own-O he , Elemen wise). Each ow o he equa ion o
he VAR migh unca e a a gi en lag o de (e.g., Componen wise) o allow he lag o de o he single se ies
o unca e a a di e en o de wi h espec o he o he se ies (i.e., Own-o he ). The lag s uc u e migh also
allow each componen o he se ies o ha e i s own lag o de (e.g., Elemen wise). While o he app oaches
(i.e., in o ma ion c i e ia) p o ide a uni e sal lag o de , Hlag allows lag o a y ac oss ma ginal models. Fo
he sake o his wo k, he Elemen wise HLag s uc u e has been chosen as he mo e lexible and be e
pe o ming in mul iple scena ios also conce ning o he lasso-based me hods as seen in W. B. Nicholson e al.
(2020). Following he no a ion on Equa ion 1, being L a kxk ma ix o elemen wise coe icien lags
𝐿𝑖𝑗 = 𝑚𝑎𝑥{ℓ:𝜙𝑖𝑗(ℓ) ≠ 0} [2]
as he smalles maximal lag s uc u e such ha Φ𝑖𝑗(ℓ) = 0, ℓ = 0,…,𝑝 o he model conside ed. Fo o he
s uc u es, Elemen wise HLag allows all he elemen s wi hin L o ha e no s ipula ed ela ionships. HVAR
pe o mances ha e been es ed o mac oeconomic and inancial o ecas ing W. B. Nicholson e al. (2020).
Aside om me e o ecas ing, Baghe i and Eb ahimi (2020) employ his me hodology o in es iga e he
in e connec edness o inancial s ock indexes. To he bes o he au ho ’s knowledge, his will be he i s
11
Fo he no a ion see Appendix 1
a emp o employ Hie a chical Vec o Au o eg essi e models o a iable- o- a iable analysis (i.e., Impulse-
Response) in en i onmen al mac oeconomics.
Resul s and Discussion
Despi e some excep ions (Table 3), all he es s un (e.g., Augmen ed Dickey-Fulle , KPSS, Box-Ljiung) show
he se ies p esen non-s a iona i y ei he in ends o in d i . The e o e, he se ies will be analysed in hei
i s di e ences in he ollowing s eps.
Table 3 Mul iple S a iona i y Tes s
a
box.p alue
ad .p alue
kpss.p alue
box
ad
kpss
1
kilian_indx
0
0.191
0.010
TRUE
FALSE
FALSE
2
b en
0
0.518
0.010
TRUE
FALSE
FALSE
3
co2
0
0.010
0.029
TRUE
TRUE
FALSE
4
eua
0
0.714
0.011
TRUE
FALSE
FALSE
5
hea _indx
0
0.010
0.100
TRUE
TRUE
TRUE
6
max_ emp
0
0.010
0.100
TRUE
TRUE
TRUE
7
o _ ain all
0.078
0.010
0.100
FALSE
TRUE
TRUE
8
min_ emp
0
0.010
0.100
TRUE
TRUE
TRUE
9
wind_sp10
0
0.010
0.100
TRUE
TRUE
TRUE
10
wind_sp100
0
0.010
0.100
TRUE
TRUE
TRUE
To ackle he di e en scales and uni s o measu es o he a iables, he se ies will be s anda dized o e ine
be e he subsequen analyses as sugges ed by James e al. (2013). Since he e is no consis en way o
choosing he maximum lag o de ha applies o HVAR es ima ion, W. Nicholson e al. (2017) sugges he
pa ame e p will be se acco ding o he equency o he ime se ies conside ed (e.g., 12 o mon hly se ies).
Once es ima ed he coe icien , he c oss- alida ion will be pe o med by di iding he da ase in o h ee pa s
T/3; 2T/3, espec i ely. Figu e 4 shows he spa si y ma ix o he coe icien s as he esul o he model
speci ica ion wi h 12 maximum lags. Fu he mo e, he ma ix shows he model does no conside any ex-
an e ela ionship be ween da a (e.g., Elemen wise). F om he e, i is possible o app ecia e how he
coe icien s o he diagonals end o weigh mo e on es ima ion han o -diagonal. In o he e ms, he
coe icien s o he lagged a iables end o in luence mo e he es ima ion han he single ma ginal equa ions.
Figu e 4 Spa si y Ma ix o Elemen wise HVAR

As o he op imiza ion p ocedu e, he cha in Appendix 2 shows a pa abolic shape o he penaliza ion e m
𝜆.. To show he p ima y hypo hesis, namely, he esponse o a shock o he ca bon p ice o emission ends
om he ene gy sec o , he Impulse-Response Func ion (IRF) has been modeled ou o he las es ima ion o
he HVAR. The compu a ion o he IRF ollows Pesa an and Shin (1998) o elax some u he limi a ions, no
aking in o accoun he o de o he a iables. Figu es 5-6 show he esponse o ca bon dioxide emission
ends and ele an sys em a iables o a shock on EUA p ices. Figu es 5-6 show he speci ica ion o he
model conside ing empe a u es (min, max), wind speed a 10 m , o al ain all. Focusing on he esponse o
ca bon dioxide emissions, i is possible o app ecia e how he shock gene a es a wild end o u u e
emissions, wi h in ensi y p og essi ely ading away as ime goes by.
Figu e 5 Impulse-Response Func ion CO2 emissions
As o o he ele an a iables o he sys em conside ed, Figu e 6 models IRF o commodi y p ices,
p oduc ion, and inancial indexes, EUA appea s o exe a downwa d end o Kilian Index and speci ic
commodi y p ices (e.g., B en , Na u al Gas) ha becomes clea e (ye less in ensi e) o e ime. As o he
STOXX50 index and No d Pool elec ici y, a ca bon p ice shock appea s o exe a qui e in ense esponse, a
leas in he nea e u u e.
Figu e 6 Impulse-Response Rele an co a ia es
To comple e he analysis, he Fo ecas E o Va iance Decomposi ion (FEVD) is depic ed in Figu e 7,
espec i ely, o 1, 5, 10, and 20 s eps ahead. In line wi h he p e ious analysis, he compu a ion o FEVD
ollows he app oach as in Pesa an and Shin (1998). The Figu e shows how much o he a iance in e o
o ecas ing o e e y a iable can be explained by he o he a iables. The highe is he con ibu ion o o he
a iables, he mo e in eg a ed he sys em is, and he mo e obus a e esul s and ends o he IRF Lü kepohl
(2005). As shown in Figu e 7, he a iables hemsel es exe a highe con ibu ion o he a iance. Fo he
a iable o in e es (e.g., CO2), o he in luences mos ly come om he clima e/wea he se o a iables and
commodi y p ices. Kilian Index and Na u al Gas p ice explain he ca bon dioxide a iance be ween 10%-15%
o he ca bon dioxide a iance. In his sense, acco ding o o he indings in he li e a u e, Khalili e al. (2012);
Du e al. (2018), among o he s, he in luence o commodi y p ices could be conside ed o a g ea e ex en as
p ices in luence commodi y demand and supply. O he ac o s in luencing ca bon emissions (e.g., indus ial
p oduc ion) appea o be in line wi h Decle cq e al. (2011), Dong e al. (2019), Zeng e al. (2021). As o he
in luence o EUA p ice, despi e ela i ely low (6%-7%), he alue sligh ly inc eases o e ime. All he a iables
show ex e nal in luence in hei a iance composi ion ega ding he b oade sys em. Howe e , he
con ibu ion o hose a iables appea s s ill o be limi ed. The mos signi ican in luence o EUA p ice anges
be ween 4%-5% o (max) empe a u e, na u al gas p ice, Kilian Index. On he o he hand, a ca bon p ice is
mo e in luenced by commodi y p ices and empe a u es (min, max) han he inancial index, ain all, and
wind speed. This la e inding sheds u he ligh on he analysis o he ela ionship o wind cha ac e is ics
(e.g., speed, di ec ion) as one o he de e minan o ca bon p ices (Che allie , 2012a). A mo e coun y-speci ic
analysis is deemed app op ia e o disen angle mo e consis en esul s despi e he e iden ye negligible
in luence. As o he o he a iables in luencing EU ETS p ices, hese indings a e in line wi h Mansane -
Ba alle e al. (2007), Albe ola e al. (2008); Aa ola e al. (2013). As o he beha iou o e ime, Figu e 7 does
no show any ma ked di e ence among he a iables.
Figu e 7 Fo ecas E o Va iance Decomposi ion (Speci ica ion I)
The speci ica ion wi h he hea index, ins ead o empe a u es, and wind speed 100 (Appendix 3), does no
show any di e ence in he composi ion excep highligh ing he ela ionships iden i ied by he p e ious
speci ica ion. Al hough, o no ice, he mo e ma ked downwa d end o CO2 has eme ged p obably due o
he choice o a mo e pa simonious model.
Conclusions
While imp o emen s in he so-called ca bon p ice gap signal a be e use o ma ke -based ins umen s
educing CO2 emissions, he e a e conce ns he cu en a e o change could mee he ambi ious a ge s o
he Pa is Ag eemen s (OECD, 2018). On he o he hand, he Commission es ima ed €260 billion (abou 1.5%
o 2018 he EU GDP) o comply wi h he EU G een Deal objec i es by 2030. In his sense, he EU budge will
play a pi o al ole in os e ing a socie al sus ainabili y ansi ion. Fo his pu pose, he EU is planning o
ea ma k 20% o he e enue s eam coming om he EU ETS. As om he las accoun he e enue low o
he EU mechanism amoun ed o €14 billion in 2019 (€5.7 billion in he hal o 2020), wi h €57 billion o
e enues gene a ed wi hin 2012 and June 2020 (Nissen e al., 2020). Fu he mo e, a sus ained p ice o
allowance pe mi s ensu ed a consis en e enue low despi e he lowe le el o ansac ions, especially abou
he mos ecen e en s (Aza o a and Mie , 2021; Bo ghesi and Flo i, 2019); Nissen e al., 2020). Howe e ,
Wo ld Bank (2020) es ima ed ha ei he emission ading o ca bon ax does no co e 40% o EU
G eenhouse Gasses emissions. I he sho and medium- e m e ec s o COVID-19 pandemics on ca bon
p ices migh be p edic able, s ill unce ain a e he long- e m e ec s coupled wi h he ou come o B exi . By
all means, Ve de e al. (2021) demons a e ac o s such as policy in e play (e.g., wa e bed e ec ) appea o
be key issues unde mining p ice s abili y, hinde ing conc e e aba emen e o s, and in u n, a mo e
coo dina ed amewo k ackling clima e and en i onmen al issues. This wo k ies o p o ide ul e io insigh s
on he e ec o he emission ading scheme a he EU le el, conside ing he b oade sys em (en i onmen al,
clima e, economic, inancial) adop ing a mo e sui able me hodology. Hie a chical VAR has been concei ed
o high dimensional con ex s p o iding in e p e able esul s aking in o accoun he single cha ac e is ics o
he se ies conside ed. As al eady poin ed ou , he EU ETS ep esen s he co ne s one o he EU clima e policy.
Howe e , since i s in oduc ion, in ea ly 2005, ca bon p ices ha e no eached a (high) su icien le el. Main
ac o s in luencing EUA p ice le el ha e been iden i ied in an o e supply o pe mi s du ing he i s phases,
issues ela ed o he implemen a ion o na ional policies in ETS-sec o s, and a pe cei ed lack o poli ical
commi men . O e he yea s, he p og essi e se o e o ms (Phase I, II, III, IV) has ied o build a mo e
eliable mechanism in oducing p ice adjus men s ools and he e y auc ioning o pe mi s. The li e a u e
has also ocused on he de e minan s o ca bon p ices and s udies on he e ec i eness o he policy. Those
la e ha e been mainly conduc ed on a na ional basis con on ing ETS wi h na ional policies. This wo k
employs ime se ies econome ics and lasso-based egula iza ion o p o ide new insigh s on he
e ec i eness and in eg a ion o he EU ETS conside ing economy, inance, ene gy, clima e, en i onmen .
Despi e a a he clea (downwa d) pa e n, he e appea o be o he ac o s ha exe a s onge in luence
on ca bon dioxide wi h espec o EUA p ices (e.g., clima ic/me eo ological, indus ial pe o mances, na u al
gas). Fu he mo e, esul s align wi h he p elimina y analyses (e.g., co ela ion ma ix) and he li e a u e
poin ing ou an in luence o ca bon p ices on indus ial pe o mances, commodi ies, (ex eme) empe a u es.
The lack o in luence on inancial ma ke s could explain ha no all he sec o s a e included in he EU ETS.
O e all, he magni ude o in luence o ca bon p ice owa ds he o he a iables is ela i ely weak o all he
pe iods conside ed. On he o he hand, he IRF plo has shown a nega i e pa e n o he esponse o hose
a iables o a shock on EUA p ices. Resul s wi h o he model speci ica ions con i med i no highligh ed he
indings also in line wi h he li e a u e. In his sense, he choice o a mo e lexible me hodology (HVAR) and
he compu a ion o IRF ollowing he app oach in Pesa an and Shin (1998) p o ided a mo e lexible
en i onmen o accoun o he di e se dimension o he sys em subjec o analysis as sugges ed by Che allie
(2011b). These indings p o ide ul e io insigh s o policymake s o be e aking in o accoun possible
sou ces o ca bon p ice shocks (e.g., o e lapping policies) and ailo ing exis ing adjus men mechanisms (e.g.,
Ma ke S abili y Rese e) o he s abili y o he Eu opean Emission T ading Scheme. In his sense, esul s
show he s ill ela i e p ospec i e in luence o ca bon p ices owa ds ele an a iables conside ing he
b oade sys em. These indings should also be con ex ualized in ligh o he ecen e o ms o he EU ETS
(Phase IV) ha a e no conside ed in his wo k. Fac o s in luencing he e ec i eness o he policy can be
acked down o he exis ence o (con lic ing) en i onmen al policies a na ional le els along wi h unce ain y
o e a sound p ice adjus men mechanism (Ma ke S abili y Rese e, p ice loo ) ha a e s ill objec o
discussion o policymake s. A mo e ac i e dialogue be ween na ional and EU policymake s should lead o a
comp ehensi e policy mix a oiding o e lapping aims. Despi e he well-es ablished in luence on commodi y
ma ke s, he almos non-exis en in luence o ca bon p ices on inance s ic u sensu could be deemed an
ul e io hu dle o channel unds owa ds sus ainable in es men s. E en hough EUA has been included as a
inancial ins umen by he ecen EU inancial di ec i e (MiFID2), appa en ly, ca bon allowances a e no
enough conside ed by inancial playe s. In his pe spec i e, he huge p ocess o e o m a ec ing he inancial
sec o (e.g., Taxonomy) should be designed conside ing he comp ehensi e a ay o policies om mul iple
aspec s. Among he consis en li e a u e on EU ETS and emission ading, his wo k ies o shed ligh on how
his clima e policy's cu en and po en ial in eg a ion wi h he b oade sys em. This will be a he basis o
p omo e a comple e ansi ion o sus ainabili y in ligh o he p oblem's complexi y and mul i- ace ed na u e.
Appendix 1
𝑌 = 𝑣1⊺+ Φ𝑍+ 𝑈 [1]
𝑌 = [𝑦1… y𝑇] (𝑘 𝑥 𝑇); Z = [𝑧1… z𝑇](𝑘𝑝 𝑥 1);
z = [𝑦⊺𝑡−1 … y⊺𝑡−𝑝](𝑘𝑝 𝑥 𝑇); U = [𝑢1… 𝑢𝑇] (𝑘 𝑥 𝑇);
1 = [1…1]⊺ (𝑇 𝑥 1); Φ = [Φ(1) … Φ(𝑝)] (𝑘 𝑥 𝑘𝑝)
Appendix 2
Figu e 8 Lamba Plo I-II Speci ica ion
Appendix 3
Figu e 9 shows he FEVD plo o he model's second speci ica ion, namely wi h hea index ins ead o (min,
max) empe a u es.
composi ion o clus e s. The analysis will ocus on he o ma ion and cha ac e is ics o e e y single yea .
Figu e 12 summa izes he a e age quan i ies o he single a iables o each clus e .
Figu e 12 A e age alues o e e y clus e in he h ee e e ence yea s
2008
In Clus e 1 is g ouped mos ly no he n Eu opean coun ies and Aus ia and Es onia. They a e cha ac e ized
o he highes a e age pe o mances in e ms o clean ene gy consump ion (31 % wi h espec o 3% o
Clus e 2), see Figu e 12). This is coupled wi h he lowes emissions and p ima y ene gy consump ion.
Rega ding he socioeconomic a iables, Clus e 1 p esen s ela i ely high u baniza ion wi h low densi y wi h
he second highes GDP pe capi a le el. Clus e 2 g oups Belgium, Luxembou g, and he Ne he lands, he
iches clus e pe numbe o inhabi an s wi h he highes densi y. As o en i onmen al pe o mances,
Clus e 2 holds he second-highes sha e o emissions and he lowes sha e o enewable ene gies. Clus e 3
ga he s all he Balkan, Bal ic, and Eas e n Eu opean S a es excep C oa ia and Es onia. This Clus e p esen s
lowe socioeconomic condi ions and a highe densi y o inhabi an s (105 people/sq me e on a e age see
Figu e 12). Those coun ies p esen he highes sha e o solid uels employed in elec ici y p oduc ion (43%,
see Figu e 12) and ela i ely low en i onmen al p essu e. On he o he hand, he Clus e p esen s a ela i ely
high pe o mance in clean ene gy p oduc ion (11% as opposed o 3% o Clus e 2) and ene gy e iciency.
C oa ia, along wi h G eece, I eland, Po ugal, o m Clus e 4. This g oup displays he highes u baniza ion
le el (37%, see Figu e 12) bu he lowes densi y and numbe o inhabi an s on a e age. F om he ene gy
side, i is he clus e wi h he second-highes sha e o enewables in he ene gy mix (14%). S ill, i holds he
highes sha es o solid and liquid ossil uels in elec ici y p oduc ion (28% and 11%, espec i ely). Clus e 5

collec s F ance, Ge many, I aly, Spain, Poland wi h he highes sha e o ca bon dioxide emissions on a e age.
The clus e shows he highes ene gy consump ion and he second-lowes sha e o enewables. I is he mos
popula ed clus e wi h ela i ely low u baniza ion bu high densi y. Clus e 4 p esen s he highe sha e o
manu ac u ing GVA in GDP.
2013
Clus e 1 g oups he same coun ies as in 2008 wi h he addi ion o I eland and Po ugal (Figu e 11). In ac ,
in 2013, he clus e main ained he same posi ion as he bes pe o me in ene gy consumed om enewable
sou ces. The clus e shows he highes le el o u baniza ion (33%, see Figu e 12) he lowes densi y (59
inhabi an s/sq km). Clus e 2 has no changed in composi ion om he p e ious. Inhabi an s in hose
coun ies a e he weal hies , wi h he lowes sha e o clean ene gy. The clus e also p esen s he second-
wo s pe o mance in e ms o en i onmen al p essu e (e.g., CO2 emissions). Clus e 3 (Bulga ia, C oa ia,
Czech Republic, G eece, Hunga y, Romania, La ia, Li huania, Slo ak, Slo enia, Spain) holds he lowes weal h
pe capi a and he second-highes sha e o solid uels in elec ici y p oduc ion (25%, see Figu e 12). On he
o he hand, he clus e p esen s ela i ely low ca bon dioxide emissions coupled wi h a sus ained sha e o
enewable ene gies (18%). Clus e 4 in 2013 includes F ance, Ge many, I aly, Poland, Uni ed Kingdom. I
shows he highes le el o emissions wi h he highes le el o p ima y ene gy consump ion. Fu he mo e,
Clus e 4 holds he highes sha e o elec ici y p oduc ion om (solid) ossil uels (37% see Figu e 12). I also
appea s o be he highes popula ed clus e despi e he ela i ely low le el o u baniza ion.
2018
Clus e 1 keeps all he coun ies as in 2013 wi h C oa ia, La ia, and Li huania. I is he leas popula ed, also
in e ms o densi y. This g oup o Coun ies is he second weal hy clus e in e ms o GDP pe capi a.
Mo eo e , Clus e 1 is he lowes emi e o ca bon dioxide in he a mosphe e and he highes ene gy
consume om enewable sou ces. Despi e he ela i ely high con ibu ion o he indus ial sec o , he
clus e appea s o consume a qui e low quan i y o ene gy (e.g., P ima y Ene gy Consump ion). Clus e 2
(Belgium, he Ne he lands, Luxembou g) ep esen s he weal hies and he mos densely popula ed
agglome a ion o EU S a es. On he o he hand, i holds he lowes sha e o enewables (8% Figu e 12) and a
low indus ial p oduc i i y le el. Clus e 3 ga he s Bulga ia, Czech Republic, G eece, Hunga y, Romania,
Slo ak, Slo enia. I holds he lowes GDP pe inhabi an bu he highes sha e o indus y’s con ibu ion o
he GDP (21% see Figu e 12). On a e age, 17% o people li e in he bigges ci ies, and he p ima y ene gy
consump ion is he lowes wi h espec o he o he clus e s. Clus e 3 holds he highes sha e o elec ici y
p oduc ion om (solid and liquid) ossil uels, eaching 34% o elec ici y p oduced in 2018. On he o he
hand, his clus e shows 33% o ene gy coming om enewable sou ces ( he highes pe cen age, 38%,
pe ains o Clus e 1). Clus e 4 g oups F ance, Ge many, I aly, Spain, and he Uni ed Kingdom wi h he
highes popula ion le el on a e age. The clus e appea s o be he highes emi e o CO2 in he a mosphe e
and he highes ene gy consume . Despi e he highes popula ion le el, his clus e shows ela i ely low le els
o bo h densi y and u baniza ion.
Discussion
The analysis o he clus e s has iden i ied g oups o coun ies wi h peculia cha ac e is ics. In his sense,
Clus e 1 has always ga he ed coun ies ha ha e shown ela i ely good pe o mance in clean ene gy
consump ion, ene gy e iciency, and ca bon dioxide emissions. Coun ies in ha clus e ha e always been
cha ac e ised by no being highe popula ed o densely inhabi ed. The solid basis o he clus e has been
ep esen ed by No dic coun ies wi h simila socioeconomic, cul u al, and demog aphic cha ac e is ics
Blindheim (2015). Aus ia sha es he same pe o mances, whe eas i holds a highe popula ion densi y due
o he physical e i o ial ex ension o he S a es. La ia and Li huania we e p esen in 2008 and 2018. On he
o he hand, C oa ia, I eland, and Po ugal joined Clus e 1 in 2018. La ia has shown an inc easing sha e o
enewables and ela i ely low ene gy consump ion pa e ns. The In es men and De elopmen Agency o
La ia (2020) epo ed ha he Coun y is now in hi d place among he EU coun ies ega ding enewable
ene gy consump ion. Toge he wi h Es onia and Li huania, hose wo Bal ic coun ies ha e shown good
enewable p oduc ion and consump ion pe o mances. The a ou able clima ic condi ion also helped La ia,
whe eas Es onia s ill appea s o be highly dependen on ca bon-based ene gy (Š eimikiene e al., 2016).
C oa ia managed o inc ease i s o e all ene gy e iciency by 21.4% in he pe iod 2000-2018, mos ly led by
indus y (+ 2.4% pe yea ) and he esiden ial sec o (+1.4% pe yea ) (Odyssee ,2021). As o Po ugal,
Øs e gaa d e al. (2014) obse e he Coun y has used a p og essi ely consis en amoun o enewables in
he ene gy mix wi h he help o a ou able clima ic condi ions o comba ene gy dependence. I eland
ep esen s he la es newcome o he Clus e in his pic u e in e ms o (clean) ene gy pe o mances.
Al hough he sha e o enewables in consump ion has inc eased o e ime (4% in 2008, 13% in 2013, 10.88%
in 2018), i is s ill he lowes sha e. Howe e , ene gy consump ion pa e ns appea o be in line wi h he o he
coun ies o he clus e . Clus e 2 has been s able o all he pe iods conside ed wi h Belgium, Luxembou g,
and he Ne he lands. As al eady disen angled, hose coun ies sha e he same socioeconomic cha ac e is ics
wi h high pe capi a weal h and a ela i ely small e i o ial ex ension. Indeed, coun ies in he clus e appea
o be he mos densely popula ed. As o ene gy pe o mances, Clus e 2 shows he smalles sha e o
enewables ye wi h an inc easing end (up o 8.6% on a e age in 2018). Quan i ies o ene gy consump ion
ha e sligh ly dec eased o e ime along wi h indus ial pe o mances. In 2008 he e was also he o ma ion
o Clus e 4 wi h C oa ia, G eece, I eland, Po ugal. G eece joined Clus e 3 in 2013 and has no mo ed since
hen. On he o he hand, C oa ia, I eland, Po ugal ha e joined Clus e 1 since 2013. Newcome s in Clus e
1 in 2018 a e mos ly ela ed o inc easing clean ene gy consump ion and pe o mance e iciency. As al eady
a gued, Clus e 3 shows lowe economic weal h pe capi a wi h an inc easing le el o u baniza ion. The
clus e also p esen s a low le el o p ima y ene gy consump ion coupled wi h lowe ca bon dioxide le els
om uel combus ion. Acco ding o he es ima es by Wo ld Ene gy Council and Oli e Wyman (2020),
Romania sco es among he coun ies wi h he highes capaci y o mee ing ene gy demand in e nally (e.g.,
ene gy secu i y). Howe e , Romania s ill bene i s om being an oil p oduce while i is s ill in he p ocess o
applying he EU ene gy agenda. In his sense, in he pas wo decades, he sha e o ossil uel in he ene gy
supply in he coun y has dec eased and eplaced wi h enewables (+10% wi hin 2000-2018) and nuclea
powe (+5-6% wi hin 2000-2018) (Wo ld Ene gy Council and Oli e Wyman, 2020). In Hunga y, he sha e o
nuclea ene gy accoun ed o 37% o o al inal consump ion (TFC) in 2015, hus co e ing he dec ease in
ossil uels
13
IEA (2017b). As o G eece, he coun y has hea ily elied on coal (i.e., ligni e) p oduc ion and
impo s o oil wi h a small bu inc easing sha e o enewables (mos ly bio uel and was e) (IEA, 2017a). Repo s
by Agency o Ene gy (2019); Minis y o En i onmen (2018) show Slo enia and Slo akia can be classi ied as
ne ene gy impo e s wi h a high sha e o nuclea powe in in e nal gene a ion. Poland has changed posi ion
om Clus e 3 in 2008 and 2018 o Clus e 4 in 2013. Poland has hea ily elied on ossil uel, especially coal,
o i s ene gy mix (74.4% o elec ici y gene a ion om coal in 2020) (Has e ok e al., 2021). Despi e he
p essing in luence o he EU en i onmen al objec i e o a ne -ze o economy by 2050, he Polish go e nmen
s ill plans o ely on ossil uels o a long ime (Kudełko, 2021). Howe e , acco ding o Polish Minis y o
Clima e and En i onmen (2021), Poland will be in oducing nuclea powe plan s in i s ene gy mix by he
hi d decade o 2000 o lowe he incidence o coal sou ces. The posi ion in he clus e wi h Ge many, F ance,
I aly, Uni ed Kingdom has p obably been achie ed due o hei bad pe o mances in e ms o emissions and
clean ene gy consump ion ela i e o he size o he economy.
F ance, Ge many, I aly, Uni ed Kingdom ha e o med ano he s able bloc o coun ies o e ime. In 2008 and
2018, hose ou coun ies we e joined by Spain. In 2013 Spain was eplaced by Poland in he clus e . This
eplacemen is mainly ela ed o he 2008 economic c isis ha pa icula ly hi he Spanish economy in 2013
14
.
Coun ies o his g oup ha e sco ed ma ked (wo se) en i onmen al pe o mances wi h highe CO2 emissions
coupled wi h a high popula ion le el. F om he ene gy side, Coun ies in clus e s 4-5 show highe ene gy
13
In 2015 he coun y has gone om sel -su icien o being dependen o 87% on impo s o na u al gas. The same
sha e s ands o c ude oil. Howe e , he coun y s ill elies on coal o wo- hi ds o TFC
14
h ps://www.expansion.com/2013/12/18/economia/1387360918.h ml
consump ion and ela i ely low bu inc easing pe o mances in enewable consump ion ( om an a e age o
9% in 2008 o 15% in 2018). Despi e his highe ene gy consump ion wi h espec o he o he Coun ies, his
clus e shows a e age indus ial sec o pe o mance le els o e ime. Howe e , Alola e al. (2019) p o ed
ha ca bon dioxide and housing posi i ely impac enewable ene gy gene a ion in he long un, especially
o Medi e anean coun ies. The clus e con ains he mos de eloped economies o he Union, and despi e
hei commi men o EU objec i es, hey s ill appea o lag in clean ene gy gene a ion. Acco ding o Telli e
al. (2021), he eason can be acked down o he lack o a ailable space o implemen enewable ene gy
gene a ion o he na ional demand o ene gy o eliance on o he sou ces o ene gy p oduc ion (e.g.,
F ance, Spain). Indeed, despi e he high commi men o Ge many, he coun y s ill hea ily elies on ossil
uels o ene gy supply (80% o p ima y ene gy supply in 2018). In con as , o F ance, nuclea ene gy
con ibu ed 46.6% in 2015 (IEA 2016a, 2020). Acco ding o he la es da a by IEA (2021a), nuclea ene gy
co e s a ound 45% o p oduc ion in Spain. The case o I aly
15
is di e en wi h an inc ease in p oduc ion due
o enewable ene gies (68% in 2015) despi e o al ene gy supply s ill hea ily elying on ossil uels (IEA
2016b).
Conclusions
Since he beginning o he Eu opean Union, he so-called ha moniza ion p ocess has pa ed he way o a
common o ien a ion o he Membe S a es, lea ing b oad disc e ion o each na ional egula o y amewo k
(Majone 2014). The EU egula o y amewo k is one o he mos s ingen and comp ehensi e globally. The
Union is among he leade s and signa o ies o many in e na ional ag eemen s (Pa is Ag eemen , COP on
Clima e Change, COP on Biodi e si y). In his amewo k, he la es oadmap a he policy le el, he EU has
commi ed o eaching ne -ze o ca bon emissions by 2050 agenda se ies o o he objec i es o clean ene gy,
ene gy e iciency, biodi e si y, ecosys em conse a ion, sus ainable p oduc ion, and consump ion (EU G een
Deal). This o e all ( inancial and non) impulse will ideally imp o e Membe S a es’ commi men s and
en i onmen al pe o mances. Ideally, he Eu opean Union should ac as a cohesi e en i y in he in e na ional
landscape. Cul u al and his o ical di e ences also ma k consis en di e gences wi hin he Membe S a es
ega ding en i onmen al policies and he o e all o ien a ion o he EU (Jehlička and Tickle 2004). Applying a
da a-d i en app oach, his wo k ies o p o ide a comp ehensi e pic u e o how he Membe S a es a e
coping wi h hei en i onmen al commi men s applying a consolida ed analy ical amewo k. The IPAT
ela ionship p o ided an o e a ching analy ical se ing o assess en i onmen al pe o mances comp ising
social, echnological, and economic aspec s. Howe e , clus e analysis is highly dependen on he choice o
he da a o eed he algo i hm. This wo k has ocused on hose a iables ha ha e been adi ionally
employed in he analysis o he IPAT iden i y in he li e a u e. The choice o his app oach was o p o ide a
amewo k o he con e gence o EU policy ha comp ises all he ele an dimensions (i.e., economic,
demog aphic, en i onmen al). Fu he expansions o he analysis may en ision a se o a iables mo e in line
wi h he EU's objec i es in e ms o he low-ca bon ansi ion. A clus e ing algo i hm has been applied o
h ee c oss-sec ions o da a on h ee di e en pe iods (2008,2013,2018). The analysis iden i ied h ee
speci ic g oups wi h ma ked di e ences: he ones wi h highe pe o mances in e ms o clean ene gy, ene gy
e iciency; weal hy coun ies wi h poo en i onmen al pe o mances ins ead o ela i ely poo e coun ies
wi h p omising en i onmen al pe o mances. Among hose pola ized clus e s, some coun ies ha e mo ed
h ough clus e s. A e a ansi ion phase (2013) in 2018, La ia, Li huania joined he clus e o bes
en i onmen al pe o me s. C oa ia, I eland, Po ugal managed o each Clus e 1 in 2018. On he o he hand,
Poland joined he clus e o bad en i onmen al pe o me s in 2013. On he o he hand, Spain joined F ance,
Ge many, I aly, and he Uni ed Kingdom in 2008 and 2018. Wha ma ks a consis en di e gence wi h he
o he clus e s is he demog aphic (P) dimension. E en hough clus e ing does no allow o causal
ela ionships, i is possible o a i m ha popula ion size plays a consis en ole in a coun y's en i onmen al
15
Following he esul s o he e e endum in 1987 he Coun y decommissioned all he nuclea powe s a ions
abolishing nuclea ene gy om i s ene gy mix.
pe o mance. The bulk o he policy amewo k a he EU le el on ai emissions and ene gy e iciency
add esses hea y pollu ing indus ial sec o s (e.g., ene gy, pe ochemical, indus y). On he o he hand,
esiden ial hea ing and cooling ep esen 46% o he o al ene gy consump ion o hea ing and cooling
16
(IEA
2021b). The EU Di ec i e 2012/27/EU (e.g., Ene gy E iciency Di ec i e) implemen s speci ic measu es o
p omo e a p ecise accoun o ene gy consump ion ela ed o hea ing and cooling wi hin (non-) esiden ial
buildings mee ing he o e all ene gy e iciency a ge s a he EU le el. In his sense, despi e all he incen i es
o p omo e a mo e enewable-o ien ed mix o hea ing and cooling (e.g., building ene gy codes), his ene gy
consump ion side is o e looked in he en i onmen al policy amewo k acco ding o IEA (2021b). Ba ie s o
implemen ing ha kind o clean echnologies in (non-) esiden ial buildings can be acked down o he
di icul y o he payback mechanism he di icul y o eaching an ag eemen on he in es men (i.e.,
esiden ial buildings). On he o he hand, F aunho e Ins i u e o Sys ems and Inno a ion Resea ch e al.
(2017) ind in es men s o non- esiden ial buildings o en a e unde aken i hey p o ide conc e e
ad an ages in labou p oduc i i y (e.g., a be e wo k en i onmen o employees). In ac , o all Eu opean
Membe S a es, only C oa ia has no se speci ic policy op ions o hea ing and cooling in any sec o (REN21,
2021). Ano he in e es ing eme ging pa e n is nuclea ene gy wi hin he ene gy mix as a subs i u e o ossil
uel-based sou ces. Nuclea powe ep esen s mo e han 50% o elec ici y consump ion in F ance, Slo ak,
and Hunga y and is a highe low-ca bon sou ce o o he EU Coun ies (IEA, 2019a). Nuclea powe is s ill
unde conside a ion o be included in a Delega ed Ac o he EU Taxonomy. Indeed, i has been a gued ha
he echnology mee s he “do-no-signi ican -ha m” (DNSH) p inciple. Eu opean Commission Join Resea ch
Cen e (2021); Scien i ic Commi ee on Heal h, En i onmen al and Eme ging Risks (2021); IAEA (2021)
highligh he main c i ical poin s e ol e a ound (haza dous) was e p oduc ion and ma e ial e iciency o
exis ing plan s in he use o u anium
17
, conside ing i s ex ac ion and he a he insu icien a en ion o he
impac o adia ion on (ma ine) ecosys ems.
O e all, Chap e 2 ies o shed ligh on he s a e o con e gence o na ional pa e ns in en i onmen al policy
implemen a ion, mee ing he objec i es a he EU le el. Mo eo e , he wo k ies o p o ide a new
pe spec i e o employmen o a well-es ablished analy ical amewo k. Clus e ing echniques allow
sys ema iza ion and classi ica ion ia a sole da a-d i en app oach wi hou any in e ence on he ela ionship
among a iables. Fu he mo e, he esul s o clus e analyses a e highly dependen on he numbe and
na u e o he a iables conside ed. Despi e hose limi a ions, he wo k eeds he li e a u e o policy
con e gence, p o iding a sys ema ic classi ica ion o coun ies wi h espec o hei pe o mances in ele an
a eas o policy in e en ion. The compa a i e s a ic analysis o e h ee e e ence pe iods p o ided a di e se
pic u e o en i onmen al pe o mance. The choice o he da a has p ima ily ollowed he li e a u e on IPAT
analysis o p o ide an analy ical amewo k encompassing all he dimensions o he human-en i onmen al
ela ionship (i.e., economic, demog aphic, echnological, en i onmen al). Fu he de elopmen o his wo k
migh include a iables mo e di ec ly ela ed o he objec i es se a he EU le el on low-ca bon ansi ion.
O e all, he landscape o he EU Membe S a es p esen s pe sis en clus e s o Coun ies o e ime, also
conside ing he socioeconomic dimension. In ac , a e a ansi ion phase ( o mos o he S a es in 2013),
some Coun ies managed o inc ease hei pe o mances in e ms o clean ene gy consump ion, emission
educ ion, ene gy e iciency, whe eas some o he s did no . Ideally, he ul ima e aim o he Eu opean Union
would be o ha monize he Membe S a es in e ms o policymaking and (en i onmen al) ou comes; he
analysis sugges s much wo k has al eady been done, whe eas much mo e is needed.
16
72% o ene gy consump ion o hea ing and cooling comes om coal sou ces IEA (2021b)
17
The cu en echnology o nuclea plan s implies a high pe cen age o ac i a ed u anium no ecyclable. Recen
echnological de elopmen (e.g., as -neu on spec um) will imply he exploi a ion o he ma e ial 50 imes highe
han he cu en a e (Eu opean Commission Join Resea ch Cen e , 2021)
Chap e 3 - Financial Inno a ions o Sus ainable Finance: an explo a o y
esea ch
Abs ac
Open clima e and g een inance issues conce n he lack o a comp ehensi e axonomy o g een and b own
asse s and he unce ain y o e he subs an ial ad an age in in es ing in g een p ojec s (e.g., g eenium).
Ba ie s o en i onmen al- ela ed in es men s boil-down o he lack o a s able clima e policy amewo k
coupled wi h he lack o knowledge abou clima e change e ec s, sui able inancial ins umen s, liquidi y in
he ma ke , and clima e- ela ed disclosu e. Among his de eloping amewo k, inancial ac o s ha e
concei ed inno a i e ins umen s o o e come some o hose ba ie s in line wi h he peculia i ies o
sus ainabili y-o ien ed in es men s. Via collec ing ele an ins ances, his wo k in es iga es he possible ole
inancial inno a ions can play in he ansi ion owa ds sus ainabili y. In some cases, exis ing s uc u es we e
adjus ed o include en i onmen al-o ien ed p ojec s ex ending de- ac o hei use-o -p oceeds (e.g., g een
secu i iza ion, g een co e ed bonds). Some o he ins umen s ha e been de eloped, including non- inancial
dimensions wi hin hei p icing models (e.g., wea he de i a i es). Conside ing he peculia i ies o
sus ainabili y-o ien ed in es men s, new inancial p oduc s we e designed o me ge exis ing ones (i.e., PRS).
New echnologies (i.e., blockchain) ha e imp o ed exis ing business models a o ing al e na i e ways o
inancing (i.e., mic o inance, c owd unding) wi h he pi o al ole o public-p i a e ini ia i es (i.e., Blended
Finance, PACE). As he po en iali ies o inancial inno a ions ha e been a he co e o ecen socie al u moil
(e.g., 2008 inancial c isis), a mo e cohesi e ins i u ional amewo k could lead o mo e comp ehensi e
analyses o he e ec s (posi i e o nega i e) hey migh ha e on his ansi ion.
Keywo ds inancial inno a ions; sus ainable inance; clima e- ela ed isk; sus ainabili y ansi ion
In oduc ion
So a , Chap e s 1 and 2 mainly we e ocused on ca bon ma ke s and policy implemen a ion wi hin he EU
amewo k. As al eady men ioned in he in oduc ion, he o he signi ican opic o his disse a ion is ela ed
o he sus ainabili y ansi ion o he inancial sec o and inancial ma ke s. T adi ionally, he o e all
discussion a ound sus ainabili y ansi ion in inance can be acked down o he amous speech o Ma k
Ca ney (2015), once Go e no o he Bank o England in 2015. Ca ney a gued ha i en i onmen al economics
has been dealing wi h he agedy o commons, inance will be acing he “ agedy o he ho izon.” As widely
acknowledged and ema ked by IPCC (2018a, 2019), he need o a mo e sus ainable pa h o socie y has
g own, p essing. Acco ding o Sp a (2015); EU HLEG (2018), he inancial sys em and o he ele an ac o s
o he economic issue a e called o econside i s ole in ligh o his o e all ansi ion. The e a e many
channels h ough which he inancial sec o can play an in luen ial ole in boos ing a new cou se o ac ion
(Galaz e al., 2018). Indeed, acco ding o Campiglio (2016); D’O azio and Popoyan (2019); Spence and
S e enson (2013), he c i e ia he inancial sec o adop s o pe o m his unc ion can be conside ed ele an
owa ds a consis en shi o he o e all socie al sys em. On he o he hand, he inancial wo ld has been he
co e o one o he mos ecen b eakdowns o he economic sys em (The Economis , 2013). The inancial
sys em is now unde s ic su eillance o a oid ano he economic down u n. The cu en poli ical discou se
ocuses mo e on inancial s abili y, no o men ion en i onmen al o social conce ns (ACCA, 2011; UNEP FI
and CISL, 2014). Indeed, shi ing om mains eam inance o sus ainable inance en ails «deep quali a i e
changes in he p ac ice o inance», as s a ed by Lagoa de-Sego (2019). In o he wo ds, including
sus ainabili y conce ns implies he change o he objec i e o he in es men om money o alue. Following
TCFD (2017); Mille e al. (2019), clima e- ela ed isk can be di ided in o wo di e en ca ego ies (e.g.,
physical, ansi ion isk). Physical isk conside s all hose isks ela ed o ma e ial damage o asse s, leading
o dis up ion and loss o alue. On he o he hand, ansi ion isk conce ns he unce ain pa hway o he

sus ainabili y ansi ion. As he pa h owa ds sus ainabili y becomes mo e conc e e, some classes o asse s
(e.g., ossil uel) will ine i ably lose alue wi h espec o o he classes (e.g., enewable sou ces).
Figu e 13 F om Physical and T ansi ion isk o Financial S abili y isk
Sou ce (Ne wo k o G eening he Financial Sys em, 2019)
Figu e 13 depic s he mechanism o ansmission o clima e- ela ed isk o he inancial sys em. Risk
s emming om clima e change migh i e e sibly unde mine he inancial sys em’s s abili y. E ec s on
inancial asse s o physical isk a e ansmi ed o he inancial sys em h ough losses in he inancial, c edi ,
and insu ance ma ke due o ma e ial dis up ion o he so-called s anded asse s. O ganiza ions may be
exposed o clima e change's unce ain and nonlinea na u e (Bu ke e al., 2015; Mille e al., 2019). I , as
ound by Mille e al. (2019), he impac s o physical isks can only be quan i iable ex-pos , hey can ha dly
be ans e able in o expec ed u u e isks. On he o he hand, o ganiza ions migh be exposed o he
amewo k's con inually e ol ing na u e ela ed o a low-ca bon ansi ion and he inc easing numbe o
li iga ions. Risks may a ise om he unce ain y o echnology de elopmen and deploymen iming and
ab up shi s in commodi y supply and demand (TCFD, 2017). Also, he e is he issue ela ed o he so-called
s anded asse s, he loss o alue o ca bon- ela ed asse s due o s ic e en i onmen al policies NGFS (2019).
Recen wo ks ha e p o ed ha he po olios o inancial and non- inancial ins i u ions a e exposed o bo h
hose wo kinds o isks. Mo ana and Sb ana (2019) ound ha 50% o ou s anding isk capi al in he
ca as ophe bond ma ke is exposed o A lan ic hu icanes enhanced by global wa ming. Faiella and Na oli
(2018) showed ha he augmen ed hyd ogeological isk a ec s c edi lending among I alian i ms. Die z e
al. (2016) ca ied ou a s udy wi h a e sion o he DICE model ha iden i ied a consis en ail isk o VaR
p ojec ions in a 2.5 C° scena io.
Indeed, he inc easing likelihood o occu ence o ha she clima ic condi ions along wi h mo e s ingen
policy measu es may unde mine he co ec unc ioning o inancial ma ke s ia c edi a ioning, loss o asse
alue, illiquidi y (NGFS, 2019). On he o he hand, Ba is on e al. (2019) p o e eedback loops ansmi
clima e- ela ed isk om he inancial o he economic sys em. The physical isk may be a ec ing se e al
aspec s o he economy. Expec a ions o u u e ha shening o clima ic condi ions (i.e., hea wa es, ising o
mean empe a u e, unce ain ain all pa e ns) migh induce in es o s and consume s o sa e mo e
comp ising he ad e se e ec s on he p oduc ion side o ce ain mo e exposed sec o s (e.g., ag icul u e) (
see NGFS (2019) and Figu e 13). No dhaus (1977); Tol (2002); M. Bu ke e al. (2016), among o he s, ha e
ied o es ima e he u u e losses o he economy (as a pe cen age o GDP) due o he enhanced physical
isk as well as he economic cos o compliance wi h a low-ca bon economy.
The ex an esea ch e o s a e de eloping a me hodological amewo k o include clima e- ela ed isk wi hin
exis ing c edi assessmen mechanisms (Ba is on e al., 2019). The peculia i ies o inancial isk ela ed o
clima e change can be acked down om he non-linea i y o clima e shocks, he deep unce ain y on he
impac o clima e change on human and na u al ecosys ems, and he endogenei y o isk (Ba is on e al.,
2019). Mo eo e , S aubli and Vellaco (2020) no ice clima e- ela ed isk assessmen can only include
physical and ansi ion isk, no a combina ion o he wo. This pape will be analyzing he po en ial ole o
inancial inno a ions in p omo ing he sus ainabili y ansi ion o he inancial sys em. Rele an examples a e
p esen ed a e a b ie o e iew o how inancial inno a ions could add ess s uc u al ba ie s o in es men s
in he sus ainabili y-o ien ed p ojec . Those inno a i e inancial appea o be designed conside ing he
s uc u al ba ie s o he speci ic a ea o in es men and he ins i u ional amewo k. Howe e , as he
po en iali ies o inancial inno a ion ha e led o socie al u moil, a mo e cohesi e ins i u ional amewo k on
sus ainable inance is conside ed a undamen al s ep o u he (empi ical) analysis.
A Sus ainable Finance Pe spec i e on Financial Inno a ions
E en hough he e is a need o u he empi ical p oo , he clima e- ela ed isk can a ec he o e all
unc ioning o he inancial sys em (NGFS,2019). The enhanced isk ela ed o ce ain ex eme e en s (e.g.,
loods, hu icanes, hea wa es) may di ec ly impac c edi es ic ions, as Faiella and Na oli (2018) ound.
Hong e al. (2019) highligh ed how he commodi y ood ma ke unde eac s clima e-change isk ela ed o
he inc ease o d ough s. On he o he hand, Cla k e al. (2018) ind he lack o manda o y disclosu es on
clima e- ela ed isks, “sho - e minism” o inancial ins i u ions, he impe ec e alua ion o na u al capi al,
and he hea y eliance on olun a y commi men a e among he main ba ie s o in es men s in g een-
ela ed p ojec s. The mos ecen da a p esen ed in Buchne e al. (2019) show he p i a e sec o accoun ing
o 56% o he o e all
18
(USD 579 billion) low o clima e inance in es men s. A sys ema ic s udy conduc ed
by Ha ne e al. (2020) highligh ed how he mos impo an ba ie s o g een in es men s a e he lack o a
s able clima e policy amewo k and lack o in es men oppo uni ies. O he ele an ba ie s a e he lack o
knowledge, lack o sui able inancial ins umen s, lack o ma ke liquidi y, and lack o clima e disclosu e. The
banking sys em's ole en ails he capaci y o c ea e c edi ia expanding bo h sides o hei balance-shee
(Campiglio, 2016). On he o he hand, o Bes (2017); IEA (2019b), among o he s, a p oac i e and well-
de eloped inancial sys em has in luenced he ene gy mix and ene gy ansi ion. Though, he endency o
disin e media ion om long- e m c edi due o he egula o y amewo k (e.g., Basel III) and he absence o
al e na i e sou ces o capi al poses and unde h ea o low-ca bon p ojec inancing (Spence and
S e enson, 2013). The Economis (2013); Ronco oni e al. (2017) highligh ed asymme ic in o ma ion, he
inc easing complexi y o he inancial ne wo k, and he consequen misp icing o asse s ha e unde mined
he inancial sys em's s abili y, leading o he inancial c isis o 2007. In he a e ma h o his mos ecen
economic and inancial down u n, he inancial ealm's policy discou se con ibu ed o edesigning he ade-
o be ween s abili y and e iciency o he inancial sys em, in a o o he o me (ACCA, 2011). In his sense,
a s udy by EBA (2016) inds ha he mo e s ingen c edi assessmen p ocedu es ha e inc eased he
selec i i y o inancial ins i u ions. The mos ecen clima e- ela ed s ess es by he Cen al Bank o
Ne he lands (DNB) and con ained in S aubli and Vellaco (2020) highligh ed how Du ch banks would lose
a ound 4% poin s o capi al adequacy a io (10% poin s o sol ency a io o insu e s) due o a clima e- ela ed
shock o he sole ansi ion isk. Since, acco ding o Basel III egula ion, he minimum equi emen o ha
a io is 4.5%, Du ch banks would all below he minimum equi emen a e a single shock. The e o e,
inancial ins i u ions a e demanding poli icians se loans o mos -sensi i e a eas o in es men (e.g., ene gy
ansi ion) a he lowes isk weigh ing possible (e.g., lowes capi al adequacy equi emen ) (Kem e and
Schä e , 2013). As capi al and liquidi y equi emen s appea o be ma ginal in en i onmen al c edi isk
assessmen , s ic e equi emen s a he policy le el may gene a e a ade-o be ween s abili y and
sus ainabili y (UNEP FI and CISL, 2014). On he o he hand, he e is inc easing conce n wi hin academia and
policymake s ega ding he mos app op ia e policy amewo k o os e he ansi ion owa ds sus ainable
inance. Indeed, he e is wide consensus on he u ge o sound and comp ehensi e de ini ions o inancial
ac i i ies o p oceed u he on wi h he sus ainabili y ansi ion o he inancial sys em (Campiglio, 2016;
D’O azio e Popoyan, 2019b; EUHLEG, 2018; EUTEG, 2020). Ano he poin wo h men ioning conce ns he
deba e a ound he so-called g eenium, he hypo he ical isk p emium ela ed o in es ing in g een p ojec s.
So a , Alessi e al. (2019) has highligh ed how in es o s a e keen o pay a nega i e isk p emium o g een
18
In 2017/2018 USD 178 billion o loans ha e been g an ed o clima e- ela ed in es men s as opposed o USD 675
billion o ossil uel indus y. G een bonds ma ke ha e inc eased om USD 65 billion o issuance in 2015/2016 o USD
165 billion in 2017/2018 (Buchne e al., 2019)
asse s. In con as , he e exis s a h ea o po en ial losses o g een s. b own asse s. On he o he hand,
acco ding o Ambec and Lanoie (2013), IEA (2019), indus ies ocusing on ce ain en i onmen al aspec s (e.g.,
ene gy ansi ion) appea o eap bene i s in e ms o bo h economic and inancial pe o mances. Febi e al.
(2018); Ze bib (2017) p o ed some g een-labeled inancial ins umen s (e.g., g een bonds) o be mo e liquid
wi h espec o con en ional coun e pa ies. Wo ldwide, inancial ins i u ions and su eillance bodies ha e
endea o ed o ame sus ainable inance and g een ac i i ies ( o a e iew, see D’O azio and Popoyan
(2019)). Ne e heless, as b oadly a gued in Ba is on e al. (2019), some inancial ins i u ions will soon ace
a g ea exposu e o clima e- ela ed isk. A b oad de ini ion concei ed in Me on (1992), inancial inno a ions
en ails hose p oduc s, p ocesses, and business models concei ed o imp o e he e iciency o he inancial
sys em. In his amewo k, inno a ions span om echnological (e.g., c edi ca d, ATM, Fin ech, blockchain)
o new sou ces o access o inancial means (e.g., c owd unding) o inancial ins umen s (e.g., CDO, CDS,
secu i iza ion). Llewelyn (2009) p o ide a classi ica ion o inancial inno a ions acco ding o hei unc ions.
O e he yea s, many inno a i e p oduc s ha e been enginee ed o cope wi h a speci ic aspec o inancial
isk:
Table 4 Summa y o Financial Inno a i e p oduc s and hei unc ions
Inno a ion
Func ion
Type o isk
Secu i iza ion, C edi /Debi
ca ds
Inc ease liquidi y o speci ic
ma ke s (i.e., eal es a e)
Liquidi y Risk
C edi De aul Swaps
Shi ing/hedging isks
C edi Risk
C edi Sensi i e No es
Reducing Agency Cos s
Ope a ional Risk
Ze o-coupon bonds
Deduc in e es expenses
as e han in e es s on he
bond
Tax Risk
Equi y con ac no e
Con e he no es in o he
common s ock o he bank
Legal and Regula o y Risk
Sou ce (Finne y, 1992; Gas ineau, 1993)
Table 4 depic s a small summa y o some inno a i e inancial p oduc s, hei unc ions, and he ype o isk
hey y o ackle. Financial inno a ions, such as secu i iza ion, e ec i ely enhance he liquidi y o a pa icula
ma ke (e.g., eal es a e). C edi De aul Swap, o ins ance, is designed o shi isk o hedge in es o s om
he occu ence o a pa icula c edi e en ha may endange he possibili y o epaymen (Amadei e al.,
2011). Some enginee ed inancial p oduc s a e also concei ed o educe ansac ion and agency cos s, such
as sensi i e c edi no es. Fu he mo e, Llewellyn (2009); Le ne and Tu ano (2011) a gue ha , as in he
manu ac u ing sec o , inno a ions wi hin he inancial ealm can be igge ed ei he by a speci ic need o he
ma ke o o o e come ce ain ba ie s om he egula o y side. The e is ela i ely poo li e a u e on bo h
om he heo e ical and empi ical poin o iew (see F ame and Whi e (2004); Lau e a (2018) o a e iew).
Howe e , Allen and Gale (1995); B unne meie (2009) conside inno a i e inancial p oduc s ei he as a
posi i e ac o os e ing he inancial sys em g ow h (e.g., inno a ion-g ow h iew) o as a nega i e ac o
(e.g., inno a ion-complexi y iew) inc easing he complexi y o he inancial ne wo k.
A e he amous speech by he o me go e no o he Bank o England, Ma k Ca ney (2015), he inancial
sec o has in od en i onmen al conce ns in he inancial decision-making p ocess. Especially coming om
he public sec o and some p i a e ini ia i es, many ins umen s used and egula ions a e now ying o boos
he inancial ealm's sus ainabili y ansi ion and he economy (In e na ional Capi al Ma ke Associa ion,
2018). In pa allel, Cha zi heodo ou e al. (2019) s a e ha a e inc easing a en ion o clima e change and
he en i onmen by in es o s and media, ac o s in he inancial ma ke ha e de eloped ailo ed inancial
in es men s solu ions (e.g., g een bonds, SRI). Howe e , e en hough clima e- ela ed inancial isks ha e
been iden i ied, in es o s a e also conce ned wi h he u u e e ec s clima e change will exe on he di e se
aspec s o inancial isk (Bol on e al., 2020). Unce ain y ega ding physical isk is ela ed o he
unp edic able e ec o he al e a ion o biogeochemical p ocesses on socio-economic sys ems coupled wi h
he e en ual eaching o he so-called ipping poin s. T ansi ion isk in i sel is unce ain due o he possible
occu ence o ou di e en scena ios ela ed o he capabili y o he inancial sys em o cope wi h he o e all
socie al ansi ion owa ds sus ainabili y.
While coping wi h a lack o a comp ehensi e amewo k on sus ainable inance, inancial in es o s a e ying
o o e come common ba ie s and isks ela ed o g een and clima e- ela ed in es men s by adop ing
mul iple app oaches. In speci ic sec o s (e.g., elec ici y), he o e all policy push highligh s he need o
inc easing in es men s (Ca us, 2013; IEA, 2019b). As men ioned by Bes (2017), he ole o he inancial sec o
migh be pi o al in os e ing an o e all sus ainabili y ansi ion. En i onmen al- ela ed in es men s may
include small-scale p ojec s (e.g., p i a e sola panels, ene gy-e icien houses) o g ea e in as uc u e
p ojec s (i.e., wind pa ks, sola a ms, sma g ids, wa e managemen , hyd opowe , wa e in as uc u es,
g een buildings). B ei schop and Pudlik (2013) a gue ha he na u e o he p ojec bea s di e en laye s o
isk and a a iega e app oach o deal wi h i . On he o he hand, he enhanced equi emen s o accessing
c edi , sus ainabili y, and sol ency o inancial ins i u ions migh pose addi ional ba ie s o in es men s in
he ield de (Pai a, 2010). Since he amoun o capi al a he disposal o speci ic (high) isk ca ego ies o asse s
migh be limi ed, in es o s adop s a egies o access his ma ke segmen (Ba le , 2019)
19
.
S a e o he a o clima e- ela ed inancial isk
The pe cep ion o isk o in es o s is e lec ed in he inancing cos (e.g., in e es a e) o cos o capi al (e.g.,
e u n expec a ion): his is alid ei he o high o low ca bon echnologies. Whe eas uel cos s p ima ily d i e
high-ca bon in es men s, ne -ze o p ojec s a e mo e capi al-in ensi e (IEA, 2019b; Schmid , 2014). Low-
ca bon p ojec s wi h ela i ely low aba emen cos s appea o be a ec ed by a highe le el o isk wi h
espec o hei ossil uel-based coun e pa ies. Acco ding o Ca alano e al. (2020), clima e change is liable
o a ec capi al s ock e osion ia wo channels, namely “g adual ac o s” and “ex eme e en s.” The o me
conce ns aspec s o clima e change wi h a slow bu in ensi ying economic impac in he u u e (i.e., c op
displacemen , sea-le el ise). The la e a e clima e- ela ed phenomena exe ing signi ican impac s on
physical asse s in a sho pe iod (e.g., loods, hu icanes, d ough s). Speci ic p ojec s a e highly dependen
on clima ic condi ions (i.e., enewable ene gy p oduc ion). The unp edic abili y o wea he migh h ea en
he easibili y o he o e all in es men . G een p ojec s may also en ail expensi e high- ech componen s,
ex ending he in es men e u n pe iod (Taghizadeh-Hesa y and Yoshino, 2020). As low-ca bon p ojec s
in ol e many ac o s in he p ocess, a isk assessmen should be add essed adop ing a mul i-s akeholde
pe spec i e (Waissbein e al., 2013). In his sense, C iscuolo and Menon (2015) a gue a unding gap migh be
iden i ied o hose p ojec s bea ing a high echnology isk p o ile e en a he seed s age (e.g., enewables).
Renewable ene gy
The end o he u u e will see an inc ease in in es men s in he ield as a p ominen co ne s one o he
ene gy ansi ion. In es men s in enewable ene gy sou ces may ake a long un o be implemen ed o hei
ull ex en . Building on anecdo al e idence, Semieniuklde (2019) highligh ed how echnologies (i.e.,
pho o ol aics, wind) deployed in he cu en ene gy ansi ion ep esen he endpoin o an inno a i e
p ocess ha s a ed decades ago. Unlike ossil uels, he capi al cos is he o emos conce n o enewables
(May e al., 2017). Despi e he o e all e o , he e seems o be li le incen i e o ce ain in es men s in he
ield (e.g., sma g id) (IEA, 2019b). Reiche e al. (2017) highligh ed ha while clean ene gy p ojec s migh
ace a high- isk p o ile, he bulk o secu i ies sold annually in he US bond ma ke
20
is low- isk blue-chip
in es men s. The global pension ma ke de o es only 0.01% o o al asse s o clean ene gy p ojec s (e.g.,
g een in as uc u es). Majo inancial in es o s end o adop a conse a i e app oach ins ead o he high-
19
«only 1 % (o $89 billion) o he $7.3 illion US bond ma ke is o new high-yield in es men s». Ba le (2019)
20
The US public bond coun s $7.3 illion o new issue olume annually, 1/3 o he wo ld bond ma ke s. Though,
Fu he mo e, only $89 billion (2% o he bond ma ke ) is des ined o new in es men s (Reiche e al. 2017)
ansla ed in o long- e m sou ces o unding p o ided o ea ly-s age businesses. The la es da a collec ed in
Con e gence (2020) show equi y ep esen s 33% o he o e all in es men s while MSMEs and small and
g owing businesses join ly ep esen mo e han 40% o he o e all unds channeled. The peculia s uc u e
o blended inance ehicles can p omo e he implemen a ion o deb con e sion mechanisms (e.g., deb - o-
na u e swaps) (Blue Bonds o deb con e sion in Small Island De eloping S a es), can design incuba o s o
local businesses (ACELI A ica, Sus ainable Sea ood Fund), can ca alyse clima e-aligned inance
25
. P ope y
Assessed Clean Ene gy (PACE) is a public-backed p og am allowing p ope y owne s o inance up on ene gy
e o i cos s paying back ia a olun a y scheme. The mechanism is based on an exis ing s uc u e known as
a “land-secu ed inancing dis ic ” a aching he loan o he p ope y a he han he owne (Cali o nia Deb
and In es men Ad iso y Commission, 2008). Each loan will ake he p ope y as colla e al and a “supe -
p io i y” i s -lien o e all he o he lien holde s (Fede al Housing Finance Agency, 2020). PACE is a well-
es ablished p ac ice in some US S a es (i.e., Cali o nia), hough simila p og ammes occu in Eu ope
26
.
Mic o inance and c owd unding
As egula ions and c edi assessmen ha e become mo e s ingen , some mos sensi i e ca ego ies (i.e., s a -
ups, SMEs) a e ecu ing o al e na i e means o ga he s a ing unds. In his sense, Mollick (2014); Ca alli o
e al. (2017); O’Reilly (2007) s a e mic oc edi and c owd unding ep esen s wo pa icipa i e business
models o en ep eneu s and small businesses o access some o ms o inancing. A mo e ac i e ole o he
in es o s and a business model mo e sus ainabili y-o ien ed e ec i ely allows c edi o ca ego ies o he wise
excluded om adi ional inancial channels (Yunus e al., 2010; P on i and Paglia ino, 2019; Conse a ion
Finance Alliance, 2020). Fu he mo e, in some cases, Conse a ion Finance Alliance (2020); So enson e al.
(2016); Visma a (2019) ound ha sus ainabili y-o ien ed business models migh be pe cei ed as a gua an ee
o he success o he in es men . Following he e iew by Ga cía-Pé ez e al. (2020), mic o inance ini ia i es
ha e specialized in a ious dimensions o sus ainabili y. Aspec s mo e s ic ly ela ed o he en i onmen al
conce n, adap a ion in es men s (i.e., na u al disas e p e en ion) in sec o s mo e exposed o he e ec s o
clima e change (i.e., ag icul u e) and access o clean ene gy (Con e gences, 2019; Oikoc edi , 2020). CAMBio
(2013) is an ini ia i e ha has aken place in La in Ame ica o enable in es men s in he conse a ion o
biodi e si y o SMEs ia mic o inance (see also Fo cella and Lucheschi (2016)). Oikoc edi (2020) has pilo ed
a p og amme in he Philippines on Na u al Disas e Managemen . Pa ne Mic oc edi Founda ion has
launched a p ojec o os e ene gy e iciency in Bosnia-He zego ina (Eu opean Mic o inance Ne wo k,
2013). C owd unding pla o m Ki a.o g has aised a qui e li ely in e es in academia (see Choo e al. (2014);
Flanne y (2007); Ha ley (2010) among o he s) as one p ominen ins ance o a high-impac c owd unding
pla o m. Acco ding o Ha ley (2010), i s peculia business model (i.e., Ki a P o ocol
27
) allows he pla o m
o und en u es ha migh be conside ed oo isky o he indus y. Among many en u es, he pla o m
has unded Komaza in Kenya o help smallholde a me s con e d ylands in o small-scale o es s o ackle
dese i ica ion and p o ide a mo e sus ainable wood supply chain (Komaza). Go undme.com aises a ound
€45 million o unds o en u es ela ed o he en i onmen
28
. F idays Fo Fu u e (FFF) has also used he
pla o m o inance hei campaigns
29
. In he ield o enewable ene gies, he EU- unded p ojec
“C owdFundRES” iden i ies ou case s udies (Oneplane c owd, Lumo, CONDA, Be e es ) o c owd unding
pla o ms unding p ojec s on esiden ial ene gy e iciency, enewable sou ces, biomass Maidonis (2018).
25
(Aligned In e media y Awa ded G an o Suppo Clima e Finance Pa ne ship - P ess Release - Con e gence News |
Con e gence, 2020; Design o he Local U ili y P ojec Agg ega o (LUPA) - Design Funding | Con e gence, 2020)
26
Fo a deepe insigh see h ps://www.eu opace2020.eu/
27
The so-called Ki a P o ocol has been used in Sie a-Leone o build he i s Na ional Iden i y Pla o m (ki a.o g,
2019)
28
h ps://www.go undme.com/s a /en i onmen - und aising
29
h ps://www.go undme.com/ / idays o u u e

Discussion and Conclusions
This Chap e has been concei ed wi h a wo old aim. I p o ided a b ie o e iew o he mos eme gen issues
conce ning he sus ainabili y ansi ion o he inancial sec o . On he o he hand, i hypo hesized a possible
ole o inancial inno a ions ackling speci ic classes o isk ela ed o sus ainabili y-o ien ed in es men and
clima e change. As he e ec s o clima e- ela ed isks ha e been disen angled in de ails (e.g., ansi ion isk,
physical isk), inancial playe s a e s ill s uggling o in oduce hose laye s o isk in hei c edi assessmen
mechanism. Despi e he ex an e o s (i.e., EU TLEG), he ins i u ional amewo k on sus ainable inance
appea s no o p o ide sound wo king p inciples o p oceed wi h he sus ainabili y ansi ion. Mo e s ingen
egula ions, he lack o a comp ehensi e (and manda o y) ins i u ional amewo k, and sho - e minism a e
he main ba ie s o in es men s in he mos sensi i e sus ainabili y ansi ion a eas (i.e., enewable ene gies,
biodi e si y, and esiden ial ene gy e iciency). Fu he mo e, he e is no sys ema ic p oo o a p emium (so-
called g eenium) o sus ainabili y-o ien ed in es men s. In his sense, he unc ion o inancial inno a ions
may be able o o e come some o hose ba ie s. In i s b oade de ini ion, inancial inno a ions encompass
p oduc s, p ocesses, business models designed o imp o e he e iciency o he inancial sys em ia ackling
some speci ic laye s o isk. Gi en he peculia i ies o sus ainabili y-o ien ed sensi i e a eas, inancial
inno a i e ins umen s ha e been concei ed ackling speci ic aspec s (e.g., isks) ela ed o hose kinds o
p ojec s. The analysis o ele an ins ances o inancial inno a ions speci ically add essed o sus ainabili y-
o ien ed p ojec s highligh ed di e en inno a i e e o s and common ai s. In some cases, exis ing
s uc u es ha e been adjus ed o he speci ic peculia i ies o g een in es men s (i.e., g een secu i iza ion),
also conside ing speci ic egional cases (e.g., G een FIDC) o a ea o in es men s (e.g., G een RMBS). On he
o he hand, some ins umen s me ely ex ended hei use-o -p oceeds o a speci ic a ea o in es men s (i.e.,
g een co e ed bonds). I is also possible o iden i y modula , inno a i e inancial ins umen s, such as
wea he de i a i es, whe e he index-based ins umen has been subs i u ed wi h clima e and physical
indexes (e.g., empe a u e, sea-le el ise). Some ins umen s we e also concei ed, me ging wo o mo e
exis ing s uc u es (i.e., PRS, Long- e m FX Risk Managemen ) p o iding a be e i o he speci ic needs o
he sec o . In digi al applica ions, new echnologies ha e been applied mos ly o isk managemen and
inancial se ices. The use o blockchain ensu es aceabili y, anspa ency, eliabili y, and disin e media ion.
New echnologies migh ha e he po en iali ies o o e come inancial exclusion o some sensi i e
ca ego ies. As in c owd unding, all he pla o ms inance wi h success MSMEs, s a -ups in sus ainabili y-
ela ed en u es. On he o he hand, some eme gen business models (i.e., mic o inance) y o couple non-
inancial (e.g., po e y exclusion, inancial inclusion) alues wi h eliable e u ns o in es o s. In his
landscape, he ole o public/philan h opic o ganiza ions in boos ing p i a e sec o in es men s (e.g.,
Blended Finance, PACE) has been consis en in speci ic con ex s. This o e iew has p esen ed a se ies o use-
cases o inno a i e inancial e o s o align he inancial sys em wi h sus ainabili y. Fu he mo e, some
s uc u al gaps in he ield ha e been highligh ed ha seem o unde mine a mo e cohesi e ansi ion. The
majo ba ie is he lack o conc e e p oo o an ad an age o in es ing in sus ainabili y-o ien ed p ojec s,
despi e he o e all esea ch e o s (Alessi e al., 2019; Biasin e al., 2019). In addi ion, he consis en e o s
o se an ins i u ional amewo k appea o be s ill in hei in ancy, p o iding unce ain y o inancial playe s.
In his con ex , he p i a e sec o is coping wi h hose s uc u al ba ie s also pushed by he in es o s ha
equi e mo e conscien ious in es men s and in es men e alua ions. Besides some olun a y egula o y
amewo ks (i.e., Equa o P inciples, ICMA- G een Bond P inciples, CBI- G een Bond Ce i ica e), inancial
playe s ha e come up wi h some inno a i e ins umen s ying o couple he needs o he in es o s, he
peculia i ies o he sec o , and he lack o ins i u ional amewo k. Despi e he consis en lack o
con ibu ions in he ield o inancial inno a ions F ame and Whi e (2004); Lau e a (2018) his wo k can be
conside ed an ul e io sys ema iza ion in ligh o he epe cussions hey ha e had wi h espec o some
ecen e en s The Economis (2013). This s udy ep esen s an explo a o y incu sion in a g owing opic o an
ea ly-s age ield o s udy wi h subs an ial po en iali ies. S a ing om he egula o y amewo k o
sus ainabili y-o ien ed inancial inno a ions aiming o c ea e he mos sui able en i onmen o inno a ions
wi hou unde mining he inancial sec o 's s abili y. In Eu ope, as exposed in Eu opean Secu i ies and
Ma ke s Au ho i y (2020), a new egula ion
30
o secu i iza ion will s eng hen he disclosu e equi emen s
o secu i iza ion opening o en i onmen al conce ns. On he o he hand, some solu ions ha e been
p oposed conside ing he peculia i ies o echnological, inancial inno a ions (i.e., egula o y sandbox) wi h
he po en ial o include sus ainabili y conce ns (FCA, 2015). In his espec , he non- inancial epo ing
di ec i e (2014/95/EU) is ano he ins ance o egula o y e o s nudging he inancial sys em owa ds
sus ainabili y. By all means, a comp ehensi e amewo k is a he basis o u he (empi ical) esea ch on
he g eenium ma e in a ield whe e “g een labels” o in es men s a e p e oga i e o non-p o i ini ia i es
(e.g., CBI, CICERO). As he po en iali ies o inancial inno a ions ha e led o a signi ican u moil o socie y,
mo e empi ical wo ks a e needed o es ablish hei e ec i e ole (posi i e o nega i e) wi h espec o he
sus ainabili y ansi ion. Though, conside ing he ex an ins i u ional amewo k, such kind o endea ou is
demanded o u u e de elopmen s o his wo k.
30
Regula ion 2017/2402 (EU)
Conclusions
Ma ke ailu es iden i y si ua ions when he ma ke place ails o alloca e (e icien ly) goods and se ices
be ween demand and supply. En i onmen al pollu ion singles ou a speci ic ins ance o ailu e ela ed o
ex e nali ies. An ex e nali y occu s whene e cos s (o bene i s) o a ansac ion a ec a hi d pa y en i ely
ex e nal o he deal. The one unde lined in his wo k is ela ed o he consump ion o he en i onmen by
humani y ha is no paying i s ull p ice. In pa icula , human-made ca bon dioxide emissions lead o ab up
changes in clima e i no unde con ol. Aside om ag eeing on he necessi y o se a p ice on he ex e nali y,
he mone iza ion o he en i onmen is some hing qui e di icul o unde ake. P icing he p essu e o human
ac i i ies enhancing en i onmen al deg ada ion en ails economic and non-economic alues. Indeed, one
speci ic app oach a he policy le el en isions he ole o he ma ke place o p o ide he ideal p ice o he
ex e nali ies. In o he e ms, le ing he ma ke place sol e he ma ke ailu e. Howe e i ial his s a emen
migh seem, i hides a qui e big challenge. As he i s poin , alloca ion should also be equal, aside om
e iciency. Mos egions o he wo ld mo e esponsible o clima e change a e no hose mo e exposed o i .
On a much smalle scale, a conc e e solu ion migh be ha e enues om p icing pollu ion should be e-
dis ibu ed among socie y. In policy e ms, his app oach migh elie e some a eas hea ily bu dened by
public axes (e.g., en i onmen al ax shi ing). Mo eo e , policymake s should be commi ed wi h espec o
he app oach hey a e unde aking o p ice ex e nali ies. Fo ins ance, in he con ex o ca bon dioxide
emissions, he choice alls be ween a ca bon ax and he implemen a ion o ca bon ma ke s. In bo h cases,
poli ical commi men shows a clea sign o socie y shaping p oduc ion, consump ion, and in es men
decisions. Conside ing i s pi o al ole, inance is a ele an aspec o conside when i comes o he
sus ainabili y ansi ion. Financial ma ke s p o ide e icien alloca ion o unds om supply o demand. This
alloca ion is o ien ed conside ing he in o ma ion inancial ac o s collec abou he isks o in es men s.
Howe e , i he clima e- ela ed isk has been iden i ied, assessmen mechanisms o hese classes o isk a e
s ill a wo k in p og ess.
The h ee chap e s o his wo k a ge speci ic issues ela ed o possible laws unde mining he pa hways o
sus ainabili y. Chap e 1 in es iga es he s a e o play o he EU ca bon ma ke and ca bon p ice beha iou
in in luencing a b oad se o dimensions. Chap e 2 iden i ies homogeneous g oups among EU coun ies in
ligh o he pa hway owa ds sus ainabili y. Chap e 3 p o ides insigh s on he ole o inancial inno a ions
in ackling speci ic classes o isk ela ed o sus ainabili y-o ien ed in es men s. In his amewo k, he EU
has been selec ed as he p ima y subjec o analysis, conside ing i s ole as a leade in he ansi ion owa ds
sus ainabili y. Howe e , i is wo h men ioning ha no one-size i s all in he (en i onmen al) policy
applica ion. The EU case ep esen s so o a singula i y in he global landscape conside ing he ul ima e aim
i was ounded. Wi h he EU G een Deal, he Union has commi ed o eaching ne -ze o emissions by 2050
wi h p og essi ely s ingen objec i es o all he a eas o he sus ainabili y ansi ion. Besides, h ough i s
long- e m budge , he Eu opean Commission has concei ed an unp eceden ed s imulus package o € 2.018
illion o e 2021-2027 (Eu opean Commission. Di ec o a e-Gene al o he Budge , 2021). Pa o hose
unds will be channelled h ough he so-called Nex Gene a ion EU wi h a o al o € 806.9 billion as an
immedia e
31
elie in he a e ma h o he COVID-19 economic c isis. This sum will be g an ed i he Membe
S a es comply wi h ce ain objec i es conside ing all he pilla s o sus ainabili y (i.e., en i onmen al,
economic, social). This budge alloca ion has been designed o suppo he mode niza ion o he EU wi h
speci ic a en ion « o a ai clima e and digi al ansi ion» wi h 30% o he budge ea ma ked o igh clima e
change, biodi e si y p o ec ion, and add ess gende - ela ed issues. Figu e 16 summa ises he o e all amoun
o unds o he EU long- e m budge disen angled in he di e en a eas o alloca ion.
31
Acco ding o he budge o he Nex Gene a ion EU, a o al € 338 billion will be p o ided h ough g an s whe eas
€385.5 billion will be p o ided h ough loans a ge ed o Membe S a es unde a ou able condi ions.
Figu e 16 Summa y o unds o he EU long- e m budge 2021-2027
Sou ce Eu opean Commission. Di ec o a e-Gene al o he Budge (2021)
As al eady men ioned in Chap e 1 and s a ed in Eu opean Commission. Di ec o a e-Gene al o he Budge
(2021), e enues o und his gigan ic inancial e o will also be ga he ed om he EU ETS and ecen
p oposals (e.g., ca bon bo de adjus men mechanism). Indeed, Chap e 2 disen angles how he p ocess o
ha moniza ion in e ms o policy implemen a ion and ou comes migh be some hing achie able. S ill, he EU
p esen s s uc u al di e ences ha can only be o e come wi h ime. In his sense, as al eady men ioned in
he In oduc ion, ac ions oday exe signi ican epe cussions in he u u e when i comes o sus ainabili y.
On he o he hand, he EU sus ainabili y ansi ion also means mo e independence, o ins ance, in ene gy
supply. As a gued in Chap e 2, many Membe S a es ha e been ansi ioning owa ds mo e sus ainable
ene gy sou ces also in ligh o cu ing impo s. In ac , Chap e 3 iden i ies how in es men s in enewable
sou ces need ex ensi e up on cos s wi h p og essi e e u ns once he plan becomes ully ope a ional.
Indeed, se ing a eliable ca bon p ice migh u he o ien in es men and consump ion choices. F om he
las accoun , EUA p ices se a eco d o € 89.27 €/ onne o CO2 in Decembe 2021
32
wi h conc e e possibili y
o eaching €100. Aside om he ecen adjus men s made by he Eu opean Commission (e.g., Ma ke
S abili y Rese e) hose igu es signal a pe cei ed commi men by pa icipan s wi h espec o he policy.
S ill, conside ing all he limi a ions o he analysis Chap e 1 highligh s how ca bon p ices exe a ela i e
weak di ec in luence. On he o he hand, he analysis did no ake in o accoun he ecen inc easing ends
in EUA p ices and o he majo e en s (e.g., B exi , COVID-19 pandemics). Ano he signi ican issue eme ged
in he h ee chap e s is ela ed o ha moniza ion o objec i es among di e en a eas o policy in e en ion.
Mos ly in Chap e 3, o unde ake a cohesi e ansi ion o he inancial sec o , he amewo k a policy le el
should be consis en ly aligned wi h o he in e es ed a eas (e.g., clima e, en i onmen , ene gy, biodi e si y).
Mo eo e , one speci ic sou ce o isk o inancial in es o s a ises om he unce ain y o iming and dep h
o he ansi ion o he o e all policy landscape (e.g., ansi ion isk). This issue is simila o wha happened
32
h ps://www.eu ac i .com/sec ion/emissions- ading-scheme/news/eu-ca bon-p ice-could-hi -e100-by-yea -end-
a e - eco d- un-analys s/
du ing he i s Phases o he EU ETS when pa icipan s did no pe cei e a conc e e poli ical commi men by
he EC on his policy. As a esul s, p ices would equen ly hi €0 pe onne o CO2 and no ansac ion would
ake place. Thus, ma ke s need a eliable backg ound o unc ion p ope ly along wi h anspa ency on wha
migh be he nex s eps policy-wise. In his sense, de ini ions a e o he ou mos impo ance o in es o s as
o single ou (non-)sus ainable ac i i ies.
Thus a , his wo k highligh ed he ac ha bo h ma ke s need o unc ion p ope ly o unde ake a ull
ansi ion owa ds sus ainabili y. On he one side, well- unc ioning ca bon ma ke s migh deli e a eliable
p ice o emissions sol ing he ma ke ailu e. Well- unc ioning inancial ma ke s p o ide an e icien
alloca ion o inancial esou ces owa ds mo e sus ainable p oduc ion and consump ion pa e ns. Common
ai s o unc ioning ma ke s a e anspa ency, e ec i e moni o ing and en o cemen mechanism,
commi men . The case o he EU ETS highligh ed some o hose laws du ing he ea ly Phases o i s
implemen a ion. Indeed, esul s in Chap e 1 highligh ed how ca bon ma ke s (a leas in he EU con ex ) a e
s ill no qui e in e wo en wi h he o e all human-en i onmen sys em. On he o he hand, he lack o he
abo emen ioned ea u es led inancial ma ke s o igge one o he majo economic down u ns o his
cen u y. Impe ec in o ma ion (o lack he eo ) ep esen s ano he cause leading o ma ke ailu e. In ac ,
s uc u al issues ela ed o clima e change s udies ha e al eady been disen angled in he In oduc ion.
Economics is ha science dealing wi h alloca ion o sca ce esou ces in cons an lack o in o ma ion.
T ansi ion owa ds sus ainabili y will always deal wi h such kind o issues. Howe e , he analysis in Chap e
2 poin ed ou cases o coun ies ha a e p og essi ely shaping hei consump ion and p oduc ion o cope
wi h his s uc u al sca ci y. As a ma e o ac , mos o he esou ces ha a e now a he basis o he cu en
p oduc ion and consump ion pa e ns (e.g., mine als, ossil- uels) a e no equally dis ibu ed among
coun ies in he wo ld. In his case, a mo e sus ainabili y-o ien ed socie y migh bene i om o he mo e
p esen esou ces. Coun ies wi h a ou able clima e (e.g., wind, sun) can maximize he bene i s o hose
condi ions making use o mo e enewable gene a ion capaci y. Fo ins ance, his was he case o La ia and
Es onia in he EU as elabo a ed in Chap e 2. Fu he mo e, Chap e 3 highligh ed how i is possible o ackle
some speci ic classes o isk ela ed o enewable in es men s wi h ailo ed ins umen s. In his pe spec i e,
sus ainabili y migh be a new oppo uni y o h i ing much mo e in line wi h he ela i e sca ci y o esou ces
a coun y may su e .
Despi e he con ibu ion and he conclusions ha migh be d awn om he h ee wo ks, some ca ea s a e
needed. Fi s o all, when dealing wi h en i onmen al issues one only eaches a pa ial analysis o he issue.
The Plane is o med by di e en ecosys ems in cons an exchange o o ganic and ino ganic ma e among
each o he . Whe he dealing wi h a speci ic ecosys em o he en i e Plane his exchange con ibu es o each
an equilib ium (e.g., homeos asis). Howe e , ha is ne e pe manen and mul iple ac o s can pe u ba e
his s a ic condi ion possibly leading o ano he equilib ium. Human ac i i ies a e a ac o in luencing he
cu en equilib ium and scien is s ea he new one would be no sus ainable o he u u e p ospe i y o
humani y (IPCC 2018b, 2019). By only looking a ca bon dioxide emissions as sou ce o en i onmen al
p essu e his wo k makes an ex eme simpli ica ion, ye necessa y. Howe e , as al eady men ioned in he
In oduc ion i is wo h s essing ha changes in concen a ion o CO2 in he a mosphe e gene a e mul iple
epe cussions in he whole biosphe e. Indeed, his includes he human and mo e speci ically he
socioeconomic sys em. Thus, when ying o cap u e his complexi y modelling makes a jus i iable
assump ion o simpli ica ion. Mos ly da a employed o he analysis p o ide bu a pa ial ep esen a ion o
he eali y in some cases e en a p oxy.
Ano he se o limi a ions is mo e ela ed o he speci ic ins umen s o analysis. O e all, he analy ical
s a egy in his wo k has been concei ed o y o encompass he complexi y o he human-en i onmen
ela ionship. In ac , he choices o he s a is ical echniques in he chap e s ace he ade-o be ween
accu acy and in e p e abili y. Those models bene i o ex ensi e lexibili y and a e sui ed o deal wi h many
co a ia es o di e en na u e. Howe e , i no ine- uned, he algo i hms migh no deli e clea -cu

in e p e able esul s James e al. (2013). Elemen wise HVAR allows o ex ensi e lexibili y in he choice o
he lags o he single se ies. On he o he hand, clus e analysis is a o ally da a-d i e app oach wi hou
imposing any p e-exis ing hypo hesis on he ela ionship among da a. S uc u al limi a ions in Chap e 3 a e
mos ly ela ed o his s ill unce ain amewo k abou de ini ions. Fu he mo e, he EU Taxonomy is mos ly
ocused only on sus ainable ac i i ies lacking he o he signi ican side o non-sus ainable one. The e o e,
his o e all wo k should be ead as a snapsho o an ex emely dynamic si ua ion. Fu he de elopmen o
he analyses in he chap e s necessa ily in ol e mo e upda ed da a and in o ma ion. As al eady disen angled
he analysis in Chap e 1 did no co e B exi and COVID-19 pandemics, wo e en s wi h signi ican u u e
impac on EU ETS. Chap e 2 acknowledges he discou se a ound he inclusion o nuclea powe among
sus ainable ac i i ies wi hin he EU Taxonomy. Whe he conside ing his sou ce as “ ansi ional” o as a
conc e e sus ainable al e na i e o ossil- uels migh shape a comple ely di e en pa hway o he ene gy
ansi ion. In Chap e 3 de ini ions ep esen he elephan in he oom o he discussion. In ac , he EU
Taxonomy ep esen s a conc e e e o in a global landscape whe e de ini ions a e s ill missing. A he ime
o w i ing, he la es news on he Taxonomy da e back o July 2021 wi h he o e all issue o nuclea powe .
Though, limi a ions a e no mo e han u u e a eas o in es iga ion in he ma e . In ac , his wo k should be
also ead in ligh o he po en iali ies ha migh s em ou o i . Chap e 2 ou lines a new po en ial use o a
well-es ablished analy ical amewo k complemen a y o causal in e ence. Chap e 3 ies o con ibu e on
aming he discussion o some qui e ele an opics looking a inancial inno a ion in a new ligh . Despi e all
he echnical simpli ica ion made wi h espec o he ime se ies econome ics amewo k Chap e 1 ies o
deli e a comp ehensi e o e iew o he economy-en i onmen sys em in he con ex o emission ading.
O e all, his wo k ied o con ibu e o he long-deba ed ques ion as o wha ex en ma ke s migh be he
ideal place o a ou an e icien alloca ion o esou ces ackling ex e nali ies. E en in he case o his wo k,
as in all economic science, he answe is: i depends. In ac , he e a e mul iple ac o s in ol ed in eaching
his aim. Mo eo e , he issue a ound equali y in alloca ion o esou ces is he eby ci ed bu goes beyond he
scope o he hesis. S ill, equali y ep esen s he o he ele an side o he sus ainabili y ansi ion gi en
clima e change will no impac humani y homogeneously. On he o he hand, wha eme ged is ha , whe he
inancial o en i onmen al, ma ke s need a a ou able con ex o pe o m e icien alloca ion. Fu he mo e,
ma ke s embed oppo uni ies. One o he e y s uc u al hu dles o sus ainable inance is he lack o a
conc e e incen i e o in es in sus ainabili y-o ien ed asse s (e.g., g eenium). On he o he hand, ce ain
classes o inancial asse s will be p og essi ely losing alue as an e ec o clima e change (e.g., s anded
asse s). As b ie ly a gued in Chap e 1 ca bon ma ke s di ec ly s em ou o he Kyo o P o ocol. No mally,
hose ma ke s a e manda o y as hey a e se by go e nmen s o cope wi h hei in e na ional pledges.
Howe e , he e a e also ins ances o olun a y ca bon ma ke s and ce i ica es ha a e mos ly aded o
o se ing pu poses. In he EU ETS he cap is p og essi ely dec easing o e ime acco ding o a linea ac o .
Thus, supply in his pa icula ma ke is des ined o be sca ce as ime goes by. The incen i e o en e p ises
in his ma ke would be o adop lowe -ca bon echnologies in o de o dec ease cos s o p oduc ion and in
u n dependency om he ma ke . Ano he signi ican hu dle o e icien ma ke unc ioning is ela ed o
he de ini ion o he objec o ansac ions. This is mo e alid when i comes o sus ainable inance wi h he
o e all discussion a ound sus ainable and unsus ainable ac i i ies (see Chap e 3). O e all, despi e limi a ions
indings in Chap e 2 highligh how he p og essi e a en ion o sus ainabili y and low-ca bon ansi ion is
shaping p oduc ion and consump ion decisions. I a ansi ion is aking place, ano he signi ican pa o he
issue is ela ed o he o e all pace o his p ocess. T ansi ions migh ake also a cen u y o comple e and as
o a unc ioning ma ke place hey equi e anspa ency, commi men and a scope.
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