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Oil-Driven Greenium

Author

Listed:
  • Zhang, Shaojun

    (Ohio State U)

  • Shi, Zhan

    (Tsinghua U)

Abstract

An influential view attributes the “greenium†—the cost-of-capital gap between carbon-intensive and greener firms—to climate risks and investor preferences. We challenge this by showing that oil shocks are pivotal: rising prices, driven by foreign supply or sector-specific demand shocks, reduce energy firms’ cost of capital by enhancing their growth opportunities, creating a divergence from other brown firms. This energy specific component explains 20% of greenium fluctuations, peaking at 50%. Reassessing events like the Paris Agreement suggests the impact of investor discipline weakens when oil’s role is considered. Overall, markets price climate risks less effectively than a

Suggested Citation

  • Zhang, Shaojun & Shi, Zhan, 2024. "Oil-Driven Greenium," Working Paper Series 2024-24, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2024-24
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    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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