The Paradox of Climate Policy Uncertainty and Financing Costs: The Policy-driven Effect on China’s Green Bond Market

Extreme weather events are becoming more frequent worldwide, increasing climate policy uncertainty (CPU). It remains unclear whether and how climate policy uncertainty affects green bond issuance costs, although they are a key tool for climate action. Although most studies on CPU and financing costs focus on developed countries, an analysis of green bonds in developing countries is warranted. Thus, the study explores how CPU affects green bond issuance costs, using Chinese green bond issuance data; it empirically examines the relationship between CPU and green bond issuance costs. For corporate green bonds, higher CPU is associated with lower green bond issuance costs. This effect is also accompanied by an increase in the intensity of enforcement and investor attention, as our study reveals. JEL Codes: G12, G32, Q54, Q58