Abstract
The aim of this paper is to study municipal green bonds as fixed-income instruments used for environmentally friendly projects. This research was motivated by the absence of an effective global CO2 pricing scheme, making green bonds one of the most important instruments to tackle climate change. After an overview of the U.S. municipal green bond market, yields of municipal green bonds vs. ordinary municipal bonds were analysed. S&P U.S. Municipal Green Bond Index and S&P U.S. Municipal Bond Index were used in the study. The methodological framework includes a review of relevant literature, descriptive statistics with correlation analysis and hypotheses testing. As initially expected, significant positive correlation between green bond and ordinary bond yields was found, where green municipal bonds generate slightly lower yields than otherwise similar ordinary bonds. The existence of a statistically significant yield discount, i.e., a green premium, has not been confirmed.
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