Econonomics of Energy and Environmental Policy

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Does adaptive capacity reduce funding costs of municipalities that are exposed to climate change risk?

Research shows that municipalities that face more risk from climate change have higher financing costs than municipalities that face less risk. However, to our best knowledge, it is unknown whether the adaptive capacity of a municaplity is rewarded in terms of lower financing costs.  We study municipal bonds issued by U.S. municipalities that are known to face risk from climate change and examine whether the climate risk mitigating role of adaptive capacity is recognized by lower issuance costs. We do find a negative relationship between adaptive capacity and bond issuance costs. We conclude that cities having policies to improve adaptive capacity are likely to be paid off by lower funding costs.
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Keywords: Climate risk, municipal bonds, adaptive capacity, funding costs

DOI: 10.5547/2160-5890.13.1.rhui

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Published in Volume 13, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.


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