Differentiated green loans
Giraudet L-G., Petronevich A., Faucheux L.
Scaling up home energy retrofits requires that associated loans be priced efficiently. Using a unique dataset of posted loan prices scraped from online simulators made available by French credit institutions, we examine the differentiation of interest rates in relation to project risk. Crucially, our data are immune from sorting bias based on borrower characteristics. We find that greener, arguably less risky, automobile projects carry lower interest rates, but greener home retrofits do not. On the other hand, conventional automobiles carry lower interest rates than do conventional home retrofits, despite arguably similar risk. Our results are robust to a range of robustness checks, including placebo tests. They together suggest that lenders use underlying assets to screen borrower’s unobserved willingness to pay, which can cause under-investment in home energy retrofits. We thereby point to a new form of the energy efficiency gap. This has important policy implications in that it can explain low uptake of zero-interest green loan programs.