Research has studied the effects of climate risk on financial markets, but few studies have addressed the effect of environmental policy on those markets. A new study examined whether federal policy aimed at mitigating local air pollution—specifically, the Clean Air Act—affected the municipal bond market from 2005 to 2019. The study concludes that increases in regulatory stringency or uncertainty over future environmental policy increased the cost of municipal debt used to fund infrastructure and other projects. The findings have implications for policy, including the risk that environmental regulations could jeopardize local governments’ ability to raise capital for critical infrastructure.
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Source: Phys.org