Gaining Green Premiums from Decarbonizing the Built Environment: A Holistic Evaluation Approach for Low-Carbon Investments

Faculty Leads: Siqi Zheng, faculty director of the MIT Center for Real Estate and the Sustainable Urbanization Lab; Roberto Rigobon, professor of applied economics at MIT Sloan School of Management

Reducing carbon footprints of the built environment (buildings, physical infrastructure and supply chain systems) is crucial for achieving net-zero emission goals, as this sector accounts for approximately 70%-80% of global carbon emissions. However, buildings and infrastructure are not always constructed or retrofitted in an energy-efficient manner due to high upfront investments and financial feasibility concerns. While revealing and quantifying green premiums can stimulate investors’ willingness to pay for lower-carbon products and practices, in reality, green premiums vary significantly across asset classes, geographies, investor preferences, and policy regimes–complicating the transition to a more sustainable built environment. This project aims to develop a holistic framework of measuring green premiums using an economically grounded model calibrated on a geo-sector case study, with the capacity to be generalized to other settings. Additionally, we will develop an interactive toolkit to enable MCSC members to incorporate assessments of future regulatory developments, investor preferences for sustainability, and utility prices when evaluating green premiums. The white paper and toolkit simulation could provide critical input for long-term financial decisions and facilitate member companies’ decision-making in choosing the most cost-effective paths to achieving net-zero emissions.