ESG and Climate Change
Paper Session
Saturday, Jan. 4, 2025 10:15 AM - 12:15 PM (PST)
- Chair: Philip Mulder, University of Wisconsin-Madison
Assessing the Environmental Performance of Green MBS
Abstract
The green bond market is growing substantially, bringing with it a concurrent focus on economic and environmental performance. Yet while extensive work exists examining for former, there is little concrete evidence regarding the efficacy of green bond use of proceeds. Concurrently, the demand for ESG-compliant investments provides an opportunity to direct capital toward the rehabilitation of one of the most energy-intensive asset classes: real estate. One program in this space, the Fannie Mae Green Rewards green bond program, offers incentives to borrowers to increase multifamily building energy and water efficiency. Although all program participants must complete a list of pre-approved projects targeting energy and water efficiency within twelve months of loan origination, there exists substantial variation in the realization of post-origination outcomes, and in the variation between projected and actual efficiency improvements. We find that fixed interest rates and supplemental financing loan structures are associated with post-origination energy efficiency improvements, as are newer, larger, and high-quality assets. However, the ex ante estimates of efficiency savings provided to prospective investors prove unrelated to the efficiency outcomes. These findings highlight opportunities to improve program transparency and calibration across the green bond universe.Residential Rent Externalities of Photovoltaic Systems: The Relevance of View
Abstract
We study how photovoltaic (PV) systems externally affect the rents of residential dwellings. By creating a three-dimensional topographical model of our study areas in Switzerland, we model each building’s view at surrounding PV installations and merge this data with rental price observations. In the hedonic difference-in-differences regressions, we provide evidence of how this view (impaired or unimpaired) on a PV system is associated with lower residential rents. This effect is stronger for the view at multiple PV systems rather than at a single one, in situations where seeing is more likely, and where PV installations disrupt a scenic view. However, price penalties are attenuated if rental dwellings have their own PV system or if neighboring properties have large PV systems, which may benefit surrounding tenants in terms of electricity provision. Furthermore, by using municipal voting results on the Swiss Energy Act 2017 and the Swiss CO2 Act in 2021, we show how stated preferences for sustainability drive the external effects of PV systems on rents. We document a similar causal pathway for lived preferences measured by the number and change in electric vehicles in Swiss municipalities.Split Incentives and Energy Efficiency Investment: Evidence from the Housing Market
Abstract
Investments in energy efficiency within the built environment play a crucial role in global efforts to combat climate change. A significant obstacle to these investments arises from the differing incentives between landlords and tenants in the housing market. Landlords, who typically do not bear utility costs, may choose to invest less in energy efficiency improvements if these investments are not adequately reflected in rental rates. Our study provides empirical evidence of this market distortion, drawing on a comprehensive panel dataset from the Dutch housing market covering 3.8 million homes over an eleven-year period. We document that, on average, rental properties exhibit approximately 7.7% lower energy efficiency and consume 7.1% more natural gas compared to similar owner-occupied homes, highlighting the impact of split incentives between landlords and tenants. This disparity is particularly pronounced for rental properties constructed before the implementation of energy-saving building regulations. A quasi-experimental approach, suggests that the transition from rental to owner status leads to a reduction in subsequent energy consumption of some 6%, observed up to eight years after the transition, compared to homes that remained rental housing. These results underscore the necessity of targeted government intervention in rental markets to effectively address this issue.Discussant(s)
Eric Zou
,
University of Michigan
Nuno Mota
,
Fannie Mae
Matthew Kahn
,
University of Southern California
Samuel Hughes
,
U.S. Treasury Department
JEL Classifications
- R0 - General