Relationship between green bonds and carbon neutrality: evidence from top five emitting countries’ sectoral CO2 emissions

Abstract This study analyzes the influence of green bonds on carbon neutrality. It examines the daily data of sectoral CO 2 emissions of the top five CO 2 -emitting nations from January 2, 2019 to December 30, 2022 using wavelet transform coherence, quantile-on-quantile regression, Granger causality in quantiles, and quantile regression approaches. The results revealed that (i) green bonds are strongly related to sectoral CO 2 emissions; (ii) green bonds reduce transport sector CO 2 emissions in China, the US, and Japan while causing an upsurge in India and Russia; (iii) green bonds reduce industrial sector CO 2 emissions only in the US; (iv) green bonds have a declining influence in energy sector CO 2 emissions at lower quantiles in India, China, and the US, whereas the impact increases at higher quantiles; and (v) green bonds decrease residential sector CO 2 emissions in the US, Russia, and Japan. The study revealed that green bonds help reduce CO 2 emissions in the residential sector in various quantiles. Therefore, the US, Russia, and Japan should raise household awareness of green energy utilization by promoting them with green bonds. In addition, green bonds can effectively reduce transportation sector CO 2 emissions in China and the US. Therefore, the policymakers of the two global powers should contribute to global CO 2 reduction by promoting green transportation and clean energy transition in the transportation sector through green bonds. Thus, green bonds can play an effective role in the fight against global warming.