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Real Options Approach for Valuing Green Certificates

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  • Jussi Vimpari
  • Seppo Junnila

Abstract

It seems that there is not a clear consensus among industry professionals on how green certificates should be valued, even though, there seems to be a consensus that certified properties are potentially valued higher than non-certified properties. This study aims to find out whether the potential extra value of a green certificate could be measured with real option valuation (ROV). Data was gathered from industry professionals using a standard discounted cash flow valuation method constructed in a spreadsheet. ROV was applied in the data using Collan's pay-off method. The results show that an average real option value of 985,000 Euro (or 8.8% premium to the average property value) was found for the green certificate. The main finding is that by examining the certificate as a real option, the potential extra value of a green certificate could be added into min and max case scenarios, thus, making it not necessary to alter the normal cash-flow scenario that should be based on the comparable data available from the market which is scarcely available for certified buildings.

Suggested Citation

  • Jussi Vimpari & Seppo Junnila, 2013. "Real Options Approach for Valuing Green Certificates," ERES eres2013_198, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2013_198
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    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2013-198
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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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