Oil-Driven Greenium

Shaojun Zhang and Zhan Shi
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Zhan Shi: Tsinghua U

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

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

JEL-codes: G10 G12 G15 Q51 (search for similar items in EconPapers)
Date: 2024-10
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2024-24

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