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Oil-Driven Greenium

May 5, 2025 11:00 am - 12:30 pm AEST
Rm 5040 ,
Belinda Hutchinson Building (H70)
The University of Sydney

Abstract

A prevailing 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 sudden disruptions in global oil supply or oil-demand surge, 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 assumed.

Shaojun Zhang's website.

Presenter

Shaojun Zhang
Ohio State University

More information

  • Pramod Kumar Yadav
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