Green Premium Research Articles

Physical climate change risk and ESG green premium

ABSTRACT We build an asset pricing model that incorporates climate change risk and firms’ ESG engagement to analyse their interactive effects on equity returns. Our model shows that a firm’s ESG engagement has three channels for influencing stock returns: its direct impact on resisting climate change risk, indirect reduction in systematic risk and attraction of green preference, and the empirical evidence shows that both risk–return relation and ESG engagement are priced. We also point out an inevitably negative and convex relation between the market Sharp Ratio and stocks market beta in an economy with climate change risk.

Managing waste packaging for a sustainable future: a strategic and efficiency analysis in the European context

AbstractThe management of package waste has become a critical concern in pursuing sustainable development, particularly within the European context, where environmental regulations and sustainability goals are stringent. This paper presents a comprehensive strategic and efficiency analysis of waste packaging management across Europe, examining current practices, policies, and technological innovations in a sample of countries. The work identifies critical challenges and opportunities in the sector using Data Envelopment Analysis and Multicriteria decision analysis. Our findings reveal significant variations in the efficiency and effectiveness of waste packaging management practices among European countries, influenced by differing policy frameworks, recycling infrastructures, and public awareness levels. Sweden and Luxembourg excel in the sustainable and technical model for recycling, while Austria prevails for recovery in both. The strategic vision suggests an emphasis on green premium, and the most sustainable alternatives are those marked by natural fibres and respect for human conditions. The paper concludes with strategic recommendations for policymakers, industry stakeholders, and communities to enhance waste packaging management efficiency. These include policy harmonisation at the EU level, investment in innovative recycling technologies, and fostering public–private partnerships to drive systemic change. By adopting these strategies, Europe can move closer to achieving its sustainability targets, reducing environmental impact, and promoting a circular economy. So, the implications of this paper are both strategic and political. The former is related to identifying the best strategy related to packaging waste, and the latter is to uniform the efficiency of waste packaging management in Europe.

Study on the Motivation and Effect of Green Bond Issuance by Enterprises

With the growing global concern for sustainable development and environmental protection, more and more enterprises are considering the use of green financing tools, such as green bonds. This paper examines a literature review that analyzes the motivation and effects of corporate green bonds in the context of this great economic transformation. The growth of green businesses in China has accelerated recently, which has sparked a lot of discussion in the academic community about the different impacts of green bonds and the reasons behind their issuance, we have studied a large number of literatures, and came to the conclusion that the green premium's existence serves as a driving force behind the issuance of green bonds. This conclusion was reinforced by the literature review, which showed that the green premium's existence is still strong. This paper's objectives are to provide an overview of the great literature, demonstrate the state of green bond research as it stands now and the presence of the green premium, and convey our optimism for the continued growth of green bonds.

“Green Companies” and Financial Performance: The Green Premium

We examine the relationship between Corporate Environmental Responsibility and Corporate Financial Performance for the S&P500 firms over a period of fifteen years. We test the effect of Jensen's alpha, stock returns, return-on-asset, size, sales, and profit on Corporate Environmental Responsibility by building a CAPM model of risk-adjusted excess returns under efficient-market hypothesis and introduce the “Green Premium,” the cost in stock return stockholders have to incur for their company's “greenness”. Although, “green” practices are positively related to sales and profit, the results suggest that market value of the company is not increased and that a significant negative relationship exists between “greenness” and stock's performance.

(Invited) Achieving Robustness and Economic Viability in CO2 Electrolysis Scale-up: Key Results from RenewCO2

RenewCO2 is commercializing processes to convert carbon emissions from chemical manufacturing, which contributes 274 million metric tons of CO2eq annually in the U.S. alone. Our pioneering electrocatalytic Carbon Utilization Technology (eCUT) is adept at upcycling CO2 from hard-to-decarbonize industrial sources. By synthesizing commodity chemicals from CO2 emissions, eCUT promises high energy efficiency while producing carbon-negative materials. The critical innovation of RenewCO2’s eCUT process is deploying catalysts designed with readily available metals, optimizing the process to reduce CO2 into multi-carbon chemicals selectively with impressive energy efficiency.RenewCO2 has significantly advanced CO2 electrolyzer scale-up, focusing on demonstrating process robustness and economic feasibility. Targeting liquid products such as monomers (glycols), RenewCO2 has demonstrated cost-advantaged process economics compared to the incumbent petrochemical and bio-derived routes. We present detailed findings on the enhanced performance of our proprietary catalysts, which have shown remarkable endurance under prolonged operational conditions (1000 h of operation) in a scaled-up stack containing five 500 cm2 electrodes. The RenewCO2 team has demonstrated consistent electrolyzer performance with minimal degradation over extended periods. We also delve into improvements in energy efficiency, showcasing how these enhancements contribute to the overall process economics.The purification process is crucial in making carbon-negative materials from CO2 that do not require a green premium. In this regard, RenewCO2 has achieved remarkable progress in demonstrating a highly energy-efficient product purification. In collaboration with Argonne National Lab, we have developed an advanced electrochemical separation method that removes ionic species from the products to comply with strict industrial standards and increase their market value. A key development in this area is our innovative approach to electrodeionization, which combines ion-exchange membranes with electrically active media. This method exhibits low energy consumption, robustness, and simple operation. These advancements in the purification process are integral to our system’s overall efficiency and are pivotal in our pursuit of creating economically viable and sustainable electrochemical manufacturing solutions.On the economic front, we provide an in-depth analysis of the cost implications of scaling up. This includes a breakdown of the capital and operational costs, along with a comparative analysis with existing technologies. We discuss the main factors contributing to product cost and strategies to minimize them, such as the integration of low-cost materials and judicious choice of operating conditions.Our aim is to provide a transparent and comprehensive overview of the challenges and the state-of-the-art in scaling up CO2 electrolysis to liquid products, offering valuable insights for the scientific community and stakeholders in the field.

CSR communication in hospitality: Fostering hotel guests’ climate (change) engagement

This study aimed to explore effective corporate social responsibility (CSR) communication strategies to increase hotel guests’ engagement in climate change initiatives. Utilizing regulatory fit theory and construal level theory, three scenario-based experimental designs were devised. These designs empirically analyzed the responses of 1500 hotel guests to 12 different types of CSR communication messages. Framed along goal framing (either gain or loss) and temporal/spatial/social distance (either far or close), these messages allowed guests to articulate their attitudes and behaviors concerning climate change engagement. All three experiments revealed that CSR communication became more persuasive with regulatory fit, leading to increased intentions for green word-of-mouth (green WOM) and a willingness to pay a green premium (green WTPP). To further validate the findings, the study also investigated the moderating effect of temporal/spatial/social distance on message framing. We found that temporal distance amplified the congruence between goal framing and regulatory focus, resulting in heightened green WOM intentions. Social distance also increased this alignment, resulting in heightened green WOM intentions and green WTPP. This study contributes to the literature on hotel guest climate (change) engagement by examining the concept through CSR communication strategies. It offers a valuable perspective on the nexus of guest engagement, CSR, and sustainability, contributing uniquely to theory and practice in these interconnected fields.

Effects of the utilization of green bonds proceeds on green bond premium

The measurement of premium remains a major challenge in the literature. This study explores the effects of green bond usage on green bond premium using green bonds data extracted from Bloomberg MSCI green bond index between 2007 and 2022. The study leverages fixed effects and pooled regression models to examine whether the green bond premium varies systematically with the issuer's specified use of the green bond's proceeds. The empirical results provide evidence of a positive association between the use of proceeds of green bonds and the premium on green bonds. The green premium of an average of 1–5 basis points across government and corporate issuers is observed. Our findings not only establish the influence of green bond usage on green premium, but also provides further evidence of how issuers can achieve borrowing cost advantage if the proceeds are targeted at environmentally friendly projects that align with investor preferences.

Decarbonizing rotary kiln–induction furnace based sponge iron production

The direct carbon dioxide (CO2) emissions from the iron and steel sector are nearly 7 % of the global CO2 emissions from energy use. India is the world's second-largest producer of steel and the largest sponge iron producer. India produces one-third of the global sponge iron, mostly from rotary kilns using coal as an energy source, resulting in higher energy and emission intensities than the global average. This study evaluates major options for CO2 abatement in the rotary kiln–induction furnace process for steel production. Based on the mass and energy balances of a typical sponge iron plant, this study evaluates the techno-economic potential of nine major decarbonization measures. The proposed decarbonization measures include improved energy efficiency, improved material efficiency, renewable energy use, and fuel substitution. Marginal abatement and green premium curves are generated by incorporating the dependency of different measures. Depending upon the set of options chosen, carbon abatement is in the range of 55.8 %–99.2 %. It is observed that 11.5 %–20.6 % of decarbonization potential can be achieved without any additional cost to the customer. These findings are insightful for policymakers and industry stakeholders and provide a foundation for designing and implementing a net-zero pathway for the sector.

How Large is the Sovereign Greenium?*

AbstractThis paper assembles a comprehensive sovereign green bond database and estimates the sovereign greenium. The development of green bond markets has been one of the most important financial breakthroughs in the domain of sustainable finance during the last 15 years. A central pecuniary benefit for green bond issuers has been that these bonds exhibit a positive green premium (greenium), that is, a lower yield relative to a similar conventional bond. Yet, issuances at the sovereign level have been relatively recent and not well documented in the literature. We find that green bonds are issued at a relatively small premium (4 basis points on average) in Advanced Economies. Yet, importantly, the greenium is growing over time and is considerably larger (11 basis points on average) for Emerging Market Economies.

Does corporate environmental responsibility create value?: The role of investors’ ESG preferences

We exploit novel micro-level emission data to investigate whether corporate environmental responsibility enhances stock value. This green premium is more pronounced for firms located in regions where residents have high social trust or held by shareholders with long-term investment horizons. The results suggest that the positive shocks in demands for corporate environmental responsibility among market participants drive the differences in returns between firms that successfully transition to a green economy and those that do not. Overall, the results underline the pivotal role of investor preference for ESG in generating the green premium.

Do private rental tenants pay for energy efficiency?: The dynamics of green premiums and brown discounts

ABSTRACT The rental market, notably within the UK, is facing increased scrutiny with the tightening of regulation in relation to energy performance and the increases in energy costs and rental unaffordability. Whilst a sizeable volume of research has examined the pricing effects of EPCs and house prices, scrutiny of this relationship within the private rental sector remains more embryonic. This study, using 2,914 transactions for Northern Ireland, extends the traditional analysis beyond the conditional mean estimate by examining the quantiles of the relationship between EPCs and rental prices. The findings provide evidence of a rental premium of 0.2% for a one-point improvement in energy efficiency. In terms of EPC ratings, we find premiums for B- and C-rated dwellings of 8.2% and 2.4% and also discount effects for E, F and G-rated properties ranging between 3.9%-5.5%. The quantile findings exhibited a parabolic effect across the price distribution demonstrating the lowest and highest priced properties to comprise higher price premiums of 13% and 16% for B-rated dwellings, however more pronounced discount effects for F- and G-rated properties at the lowest and highest deciles. The findings provide evidence to help alleviate the split-incentive problem between landlords and tenants within the UK.

Clean energy for a sustainable future: Analysis of a PV system and LED bulbs in a hotel

Scholars are increasingly prioritising sustainability as the driving force behind their research efforts, and many businesses are placing the customer at the centre of their agendas. Hospitality facilities, such as hotels, are also making concerted efforts to mitigate climate change. The present study proposed a sustainability analysis of the installation of a photovoltaic (PV) system and the replacement of conventional lighting with light emitting diode (LED) bulbs in a hotel, considering economic, environmental and social sustainability dimensions.The results showed that NPV varied between 967 and 3624 €/kW for the PV system, with a 100 % probability of achieving a positive NPV in a high market scenario and a 79–84 % probability of the same in a low market scenario. Concerning energy efficiency, the adoption of LED bulbs determined a NPV in the range of 105–216 €/bulb. These figures were highly dependent on the percentage of self-consumed energy and the purchase price of electricity. Environmental analyses indicated that the installation of a PV system could lead to an emissions reduction of 422 gCO2eq/kWh, translating to 61 tCO2eq/year. In addition, social analyses underscored the significance of renewable installations and energy-efficiency interventions to support the ecological transition. However, consumer choices within hotels did not consistently align with sustainable models. Notably, a green premium of 13.2 €/day was recognised for hotels using renewable systems, and 8.3 €/day for those using smart lighting. The results advocate for a pragmatic sustainability model that sees green investments enhancing a hotel's sustainability. However, a shift in consumer attitudes is necessary to fully realise this potential.

Global potential nitrogen recovery from anaerobic digestion of agricultural residues

Meeting the anticipated 50% increase in global food demand by 2050 requires a crucial reassessment of agricultural practices, particularly in terms of nitrogen fertilizers inputs. This study analyzes the technical potential of nitrogen recovery from livestock manure and crop residues, bringing attention to the often-overlooked resource of digestate derived from anaerobic digestion. Our analysis highlights the significant capacity of the anaerobic digestion process, yielding approximately 234 ± 5 million metric tons (Mt) of nitrogen annually, sourced 93% from livestock manure and 7% from crop residues. Additionally, we estimated that substituting synthetic nitrogen with nitrogen from anaerobic digestion has the potential to reduce greenhouse gas emissions by 70% (185 Mt CO2-eq yr−1). Lastly, 2.5 billion people could be sustained by crops grown using nitrogen from anaerobic digestion of manure and crop residues rather than synthetic nitrogen fertilizers. Although agricultural residues have double the technical potential of current synthetic nitrogen fertilizer production, 30% of croplands encounter difficulties in satisfying their nitrogen needs solely through crop residues and anaerobic digestion manure. This deficiency primarily results from inefficient reuse attributed to geographical mismatches between crop and livestock systems. This underscores the urgent need to reconnect livestock and cropping systems and facilitate the transport and reuse of manure in crop production. In conclusion, the mobilization of these large amounts of nitrogen from livestock manure and crop residues will require to overcome the nitrogen from anaerobic digestion green premium with incentives and subsidies.

Can Sovereign Green Bonds Accelerate the Transition to Net-Zero Greenhouse Gas Emissions?

This paper focuses on sovereign green bonds issued in Europe. By issuing green bonds, European governments commit themselves to realizing environmentally friendly projects and encourage other entities, including private-sector ones, to do the same, thus increasing further domestic investments in addressing climate change. However, considering that governments could pursue their sustainable goals by also issuing conventional bonds, this begs the question of why governments should prefer green bonds. A dataset of European sovereign green bonds was retrieved from the Bloomberg Fixed Income database to answer this question. The data cover all European sovereign green bonds issued until the end of 2023. Quantitative analysis confirms the existence of a small green premium for the issuers, representing an incentive to increase the issuances of sovereign green bonds. Furthermore, the government's carbon emissions reduction, the power sector decarbonization, and good climate policies, measured by the Government Climate Risk Score, contribute to further reducing a country's climate risk and consequently the costs of the issuance, thus triggering a virtuous circle which could, in turn, accelerate the transition to net-zero emissions. Despite these benefits, hurdles still exist, and have curbed the development of the market. Examples include divergence between the use of funds raised through green bonds, which should be earmarked exclusively for climate and environmental projects, and the fungibility requirements for proceeds from sovereign debt and fiscal revenues.

Low-carbon energy transition multi-agent network evolutionary under carbon trading scheme.

Transitioning to low-carbon energy is key for reaching carbon neutrality and modernizing our energy systems, but it presents significant cost-related challenges for energy businesses. To foster optimal outcomes, this paper develops a game model including power generators, high-energy businesses, and consumers in the carbon trading framework. The model explores how different entities evolve their low-carbon strategies under social learning influence to optimize utility. Stability analysis of strategy and simulation experiments reveal the following findings: (1) Greater carbon quotas reduce power generators' low-carbon transition willingness while high-energy-consuming enterprises and consumers remain unchanged. (2) Higher prices for low-carbon products offered by high-energy-consuming enterprises boost low-carbon transition motivation across all parties. (3) Increased green premiums enhance revenue for all parties but are constrained by policy and carbon pricing. (4) Both direct and indirect increases in carbon emissions negatively impact the revenue and utility for all stakeholders. (5) Increasing social learning effect fosters a shift towards low-carbon strategies, accelerating the attainment of game equilibrium, and enhancing market stability and sustainability. This research provides decision support for carbon trading policy design and low-carbon transition of energy enterprises.

The evolution mechanism of green products supply and demand in a demand‐driven market

AbstractPromoting the production and consumption of green products is one of the essential ways to achieve sustainable development. However, although some studies have explored the evolution mechanism of the supply and demand system, these scholars have not noticed that in today's prosperous economy, demand‐driven markets have become mainstream in many countries. This paper establishes an evolutionary game model with producers and consumers in a demand‐driven market and analyzes the evolution mechanism of the system. The results indicate that (1) producers are willing to produce green products only if they can obtain excess green profits; (2) the lack of supply is the critical factor hindering consumers from purchasing green products; (3) additionally, there are multiple evolutionary paths under different substitution relations of different products; (4) interestingly, green premium and the consumers' sensitivity can simultaneously mitigate the perceived losses even when green products are insufficient. The theoretical and practical implications of these findings are further discussed.

Application of the Black–Scholes Financial Model to Support Adaptability as a Sustainability Strategy for Buildings: A Case Study of an Adaptable Campus Parking Garage

In many construction projects, a “green premium” must be paid to implement sustainable designs that reduce environmental costs. Design for Adaptability (DfA) is a sustainable design philosophy that facilitates incremental renewal and infrastructure adaptation, thereby delaying future demolition and reconstruction. This paper focuses on the potential economic benefits of DfA. Notably, the paper contributes to answering the following question: is the green premium paid for an adaptable design justified by the potential long-term economic benefits? A modified version of the Black–Scholes financial options model is developed and demonstrated to address this question. A hypothetical case study of a parking garage is explored. This case study compares traditional and adaptable three-level parking garages and their potential expansion to a five-level garage at a future time. The “real option value” (i.e., the economic benefit of having the option to expand in the future) is calculated and compared under various assumptions and input parameters. The selection of reasonable model parameters for a given situation and the limitations of the Black–Scholes approach for valuing adaptable buildings are discussed. The model was developed for institutional (i.e., government or university) owners who consider their buildings as a cost of doing business without a direct relationship to revenue. It is concluded from the case study that the option value from the adaptable features of the parking garage exceeds the green premium given certain conditions. The payoff is most sensitive to the green premium, construction costs, and the owner’s inflation value on future additional parking. The work contributes to an economic case for DfA as a sustainability strategy for buildings.

The Green Premium: Environmental Regulation, Environmental Risk and Property Value

The Green Premium: Environmental Regulation, Environmental Risk and Property Value

Communicating clean technology: Green premium, competition, and ecolabels

AbstractIn markets where differences in the environmental performance of competing firms arise due to differences in technology that cannot be altered in the short run and firms have private information about their own current technology, I show that market competition creates a strategic disincentive for adopting ecolabels (even if the cost of adoption is negligible) to directly and credibly communicate this private information to environmentally conscious consumers. Firms adopt ecolabels only if the green premium that buyers are willing to pay is large relative to the production cost advantage of dirty firms; ecolabels reduce market power, increase the market share of clean firms, and reduce expected environmental damage. I analyze firms' strategic (long‐run) incentive to invest in the development of clean technology where the outcome of such investment is uncertain. The availability of an ecolabel to directly communicate private information about the final outcome of such an investment enhances the expected net surplus whereas it reduces the ex ante strategic incentive to invest which in turn lowers industry investment in cleaner technology, relative to the case with no ecolabels.

Does heterogeneous media sentiment matter the ‘green premium’? An empirical evidence from the Chinese bond market

This paper selects 346 green bonds issued in China from 2016 to 2021 as the sample, and the Propensity Score Matching (PSM) method is employed to confirm the existence of ‘green premium’ in the Chinese bond market. On this basis, data on internet media sentiment and print media sentiment are collected from ‘Sina Weibo’ and ‘China Important Newspaper Full Text Database’ by both Web Crawler Technology and Textual Analysis Methods to explore the impact and the mechanism of heterogeneous media sentiments on the ‘green premium’. The results show that both the optimism of internet media and print media can significantly promote the ‘green premium’ of green bonds, and the influence of print media sentiment on the ‘green premium’ is greater than that of internet media sentiment. In addition, the Bootstrap method verifies the mediating effect of print media sentiment in the influence of internet media sentiment on ‘green premium’, indicating that print media sentiment is an important transmission path. Moreover, the results of the heterogeneity test show that the more optimistic the media is, the more significant the ‘green premium’ effect is in the regions with higher institutional environments and financial subsidies. The ‘green premium’ of green bonds is most pronounced for higher levels of institutional environment and green bond preferential policies.