Market participants dedicate significant time to analysing the green bond premium, often referred to as “greenium.” While much attention has been given to measuring greeniums, few studies have addressed their fair value. This paper aims to fill that gap by exploring the question: “Where should green bonds be priced?” Accurately pricing greeniums is crucial for investors who seek to balance environmental objectives with their fiduciary duties. A well-priced green bond market fosters investor confidence, whereas a loss of trust in the green label could lead to widespread repricing and negatively impact returns. To address this challenge, this paper proposes a novel pricing model for greeniums that is based on avoided emissions, treating these emissions as a financial asset. By incorporating avoided emissions into the pricing mechanism, the model provides a more robust reflection of green bonds’ environmental impact. Adopting this approach may encourage greater ambition within the green bond market and lead to more rigorous evaluation of the bonds’ true environmental contributions.
