Are There Different Shades of Green? The “Greenium” in Municipal Power Bonds

Abstract

Using data on all municipal “green” bonds issued from 2010 to 2021, the authors examine whether municipal bonds issued to finance green power projects command a premium (lower yield to maturity) relative to other similar-risk municipal green bonds. Consistent with the idea that green projects are easier to identify and certify in the setting of power generation, the authors find that green power bonds command a premium of 11 basis points relative to other similar-risk municipal green bonds. Those results support a nonpecuniary utility for such easily identifiable green investments. The authors illustrate the incremental value added from this reduction in the cost of capital and a gradual move from fossil fuel to green power generation for one of the largest municipal utilities in the United States.