Carbon-Smart Municipal Bond Global Market Report 2025

The carbon-smart municipal bond market size has grown rapidly in recent years. It will grow from $118.46 billion in 2024 to $136.72 billion in 2025 at a compound annual growth rate (CAGR) of 15.4%. The growth in the historic period can be attributed to increasing corporate participation in municipal sustainability projects, rising availability of carbon offset programs, growing integration of climate risk in municipal financial planning, increasing investor preference for long-term environmentally responsible returns, and rising transparency and reporting standards for carbon-smart projects.

The carbon-smart municipal bond market size is expected to see rapid growth in the next few years. It will grow to $239.65 billion in 2029 at a compound annual growth rate (CAGR) of 15.1%. The growth in the forecast period can be attributed to rising investment in renewable energy projects, increasing government incentives for low-carbon infrastructure, growing public awareness of climate change impacts, rising demand for sustainable investment options among institutional investors, and increasing issuance of green and carbon-smart bonds by municipalities. Key trends in the forecast period include technological advancements in renewable energy generation, integration of smart grid systems in municipal infrastructure, developments in carbon capture and storage technologies, advancements in energy-efficient building materials and construction, and technological innovations in electric and low-emission public transport.

The increasing demand for renewable energy is expected to propel the growth of the carbon-smart municipal bond market going forward. Investment in renewable energy projects refers to funding initiatives that harness sustainable resources such as solar, wind, hydro, and biomass to promote clean power generation and long-term environmental and financial benefits. The demand for renewable energy is rising as countries and corporations pursue decarbonization goals to reduce carbon emissions and transition toward sustainable, low-carbon energy sources. Carbon-smart municipal bonds support renewable energy by channeling investment directly into sustainable infrastructure projects such as solar, wind, and clean energy systems, enabling municipalities to finance low-carbon transitions, reduce greenhouse gas emissions, and promote long-term energy resilience while offering investors measurable environmental and financial returns. For instance, in December 2024, according to Eurostat, a Luxembourg-based government agency, in 2023, renewable energy represented 24.5% of total energy consumption in the EU, up from 23% in 2022. Therefore, the increasing investment in renewable energy projects is driving the growth of the carbon-smart municipal bond market.

The increasing public awareness on climate change is expected to propel the growth of the carbon-smart municipal bond market going forward. Public awareness on climate change refers to the understanding and recognition among people about the causes, impacts, and solutions to global climate issues, influencing their attitudes and actions toward environmental sustainability. The rise in public awareness is driven by growing recognition of visible climate effects and the urgent need for collective action to protect the environment and ensure a sustainable future. Carbon-smart municipal bonds support climate change mitigation and adaptation by financing projects that reduce greenhouse gas emissions, enhance energy efficiency, and build climate-resilient infrastructure, enabling communities to transition toward a low-carbon and sustainable future. For instance, in July 2024, according to Gov. UK, a UK-based government organization, the UK government is aiming to reduce greenhouse gas emissions to ‘net zero’ by 2050. Additionally, awareness of Net Zero was higher among individuals aged 45 and above (93% to 95%) than those under 45 (87% to 89%). Therefore, the increasing public awareness on climate change drives the carbon-smart municipal bond market.

Key companies operating in the carbon-smart municipal bond market are focusing on developing innovative solutions such as climate bonds standard certification to enhance transparency, attract environmentally conscious investors, and promote sustainable infrastructure financing. Climate bonds standard certification refers to a rigorous verification framework that ensures bonds are funding projects with clear, measurable, and credible environmental benefits, particularly in reducing carbon emissions and promoting climate-resilient infrastructure. For instance, in March 2024, the Vadodara Municipal Corporation, an India-based governing body, issued Asia's first certified green municipal bond to finance sustainable urban infrastructure projects. It enables financing of sustainable water infrastructure projects, promoting environmental benefits such as pollution reduction and water conservation. This bond attracts eco-conscious investors, ensuring cost-effective capital and greater transparency due to certification standards. Its purpose is to support climate-resilient urban infrastructure, aligning with global climate goals and improving public health and resource efficiency.

Major players in the carbon-smart municipal bond market are Bank of America Corporation, Fannie Mae, HSBC Holdings plc, Itaú Unibanco Holding S.A., Deutsche Bank Aktiengesellschaft, Air Liquide S.A., Southern Company, Constellation Energy Corporation, National Thermal Power Corporation (NTPC) Limited, Sempra Energy, Koninklijke KPN N.V., Indian Railways Finance Corporation, Adani Green Energy Limited, African Development Bank Group, Hannon Armstrong Sustainable Infrastructure Capital Inc., Pimpri Chinchwad Municipal Corporation, Etihad Rail, Surat Municipal Corporation, Avaada Energy Private Limited, Vadodara Municipal Corporation.

North America was the largest region in the carbon-smart municipal bond market in 2024. Asia Pacific is expected to be the fastest-growing region in the forecast period. The regions covered in carbon-smart municipal bond report are Asia-Pacific, Western Europe, Eastern Europe, North America, South America, Middle East and Africa. The countries covered in the carbon-smart municipal bond market report are Australia, Brazil, China, France, Germany, India, Indonesia, Japan, Russia, South Korea, UK, USA, Canada, Italy, Spain.

Note that the outlook for this market is being affected by rapid changes in trade relations and tariffs globally. The report will be updated prior to delivery to reflect the latest status, including revised forecasts and quantified impact analysis. The report’s Recommendations and Conclusions sections will be updated to give strategies for entities dealing with the fast-moving international environment.

The rapid escalation of U.S. tariffs and the resulting trade tensions in spring 2025 are significantly impacting the financial sector, particularly in investment strategies and risk management. Heightened tariffs have fueled market volatility, prompting cautious behavior among institutional investors and increasing demand for hedging instruments. Banks and asset managers are facing higher costs associated with cross-border transactions, as tariffs disrupt global supply chains and dampen corporate earnings, key drivers of equity market performance. Insurance companies, meanwhile, are grappling with increased claims risks tied to supply chain disruptions and trade-related business losses. Additionally, reduced consumer spending and weakened export demand are constraining credit growth and investment appetite. The sector must now prioritize diversification, digital transformation, and robust scenario planning to navigate the heightened economic uncertainty and protect profitability.

The carbon-smart municipal bond market research report is one of a series of new reports that provides carbon-smart municipal bond market statistics, including carbon-smart municipal bond industry global market size, regional shares, competitors with a carbon-smart municipal bond market share, detailed carbon-smart municipal bond market segments, market trends and opportunities, and any further data you may need to thrive in the carbon-smart municipal bond industry. This carbon-smart municipal bond market research report delivers a complete perspective of everything you need, with an in-depth analysis of the current and future scenario of the industry.

A carbon-smart municipal bond refers to a type of sustainable fixed-income instrument issued by municipalities to fund projects that reduce carbon emissions, enhance climate resilience, or support environmental sustainability. These bonds allocate proceeds toward green initiatives such as renewable energy infrastructure, energy-efficient public buildings, low-carbon transportation, and carbon capture or offset programs.

The key bond types of carbon-smart municipal bonds are general obligation bonds, revenue bonds, green bonds, social bonds, and others. General obligation bonds are debt instruments backed by the full faith and credit of the issuing government, secured through tax revenues. They cater to various investor types, including institutional investors, retail investors, and others, and involve issuers such as state governments, local governments, municipal agencies, and others. These bonds are applied across areas such as infrastructure development, renewable energy projects, sustainable transportation, water and waste management, and others.

The carbon-smart municipal bond market includes revenues earned by entities through environmental impact assessment services, green certification and compliance services, and investor transparency and reporting services. The market value includes the value of related goods sold by the service provider or included within the service offering. Only goods and services traded between entities or sold to end consumers are included.

The market value is defined as the revenues that enterprises gain from the sale of goods and/or services within the specified market and geography through sales, grants, or donations in terms of the currency (in USD unless otherwise specified).

The revenues for a specified geography are consumption values that are revenues generated by organizations in the specified geography within the market, irrespective of where they are produced. It does not include revenues from resales along the supply chain, either further along the supply chain or as part of other products.

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