Green Finance and Decarbonization of Petrochemicals

The petrochemical industry is a little studied but crucial sector that needs to rapidly ramp up its climate ambition if it is to align with the SDGs and contribute to the objectives of the Green New Deal. The implications of not doing this are significant, both in terms of the environment (petrochemicals being a major producer of carbon emissions, chemical pollutants and plastic), and in terms of potentially provoking financial and economic instability and “climate Minsky” shock. This paper builds on a previous study by the authors that analysed thousands of financial transactions to identify the respective roles played by public and private banks, bond markets and other sources of capital in this sector. This paper now digs deeper into so-called “green” finance and, in particular the market-based mechanism of green bonds. It draws on empirical evidence from global financial databases and development banks, and from case-study analysis of two development-bank financed green bond issues to the petrochemical sector. Both issuances are in Asia, the world’s manufacturing hub and driving force behind increased petrochemicals production and facilities. Lessons learned here are extremely relevant for the climate change debate, as the region is at the forefront where impact will be greatest in the near-term. This paper finds that “green finance” is at best marginal, so that significant chances are needed in the provision of finance to the petrochemical industry, if it is to influence the region’s green transition and meeting the goals of Agenda 2030. Market mechanisms still offer only the slimmest pickings, making it likely that dedicated public financial institutions such as public banks will be required for any major investment push.