EuroEconomica, Vol 37, No 1 (2018)

Abstract

This paper presents an evaluation of the linkage between climate policy evolution and carbon finance development. The paper is very necessary for climate risk governance and control since it highlights empirically the fundamental role of climate finance as a foremost tool of action by climate advocacy institutions to curb global climate change risks to promote sustainable economic development. The major objective of the paper was to examine whether climate policy influence the development of climate finance. The paper adopted a quantitative approach by using two different analysis namely the OLS linear regression model and the Granger Causality tests, at an alpha (a) of 0.05. Research data were from the World Bank Carbon Finance Unit and from the United Nations Framework Convention on Climate Change archives. Results from the linear relationship analysis using the OLS indicated a positive and significant relationship between climate policy evolution and carbon finance development at a significance of P value less than 0.05 (P<0.05). Furthermore, using the Granger causality test, the analysis also proceeded to establish the causality between the two variables. Further findings thus showed a unidirectional causality, which is that climate finance has the tendency to galvanise impetus to effective climate policy. This paper thus provides pertinent information for institutions involved with climate finance and policy initiatives – to reposition climate finance as the crux that should precede climate policy to obviate policy setbacks. The paper recommends further study, which expands the time series observation to use more years and to re-evaluate the relationship for further policy information.

Key words: climate risk; climate change; climate finance; carbon finance

JEL Classification: Q54, Q56, O19, O13