Renewable Asset Price Volatility and Its Implications for Decarbonization
We find that the price volatility of renewable assets is significantly greater than that of brown assets. Our causal estimates leverage the response of electricity and credit markets to US state-level renewable portfolio standards that require some utilities to use renewables while exempting others. This extra risk is related to more volatile electricity prices and revenues, consistent with uncertainties including renewables intermittency. Using a growth model where the share of green capital balances climate damages and diversification benefits, we find that greater green-asset volatility is a more important determinant of economy-wide decarbonization than productivity differences of green versus brown capital.
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