International Industrial Ecology Day 2021

Sustainable investment tools such as green bonds are increasingly being used by fixed income investors to finance projects related to carbon reduction and climate change mitigation. Despite the growth in demand, there remains a gap between the "green" technologies these bonds finance and the life-cycle quantification of the reduction in environmental impacts due to those activities. Accurate life-cycle quantification of environmental return on investment is becoming increasingly important for bond issuers aiming to meet science-based targets for impact reduction, particularly in the corporate sector. This paper addresses this challenge by presenting a new version of the RCOT with byproducts model (Springer and Schmitt 2018) that includes explicit demand for green investment and supply “sets” of new GHG mitigation technologies for that investment demand. This approach enables an endogenous selection of the sets of technologies that meet given financial and environmental return on investment targets. We present an example of this approach in the context of potential greenhouse gas (GHG) reductions in the dairy industry in Minnesota, a sector that currently receives little direct green investment attention despite the relatively large GHG footprint. Our scenario quantifies both the potential financial and GHG return for sets of statewide investments in bondable capital associated with anaerobic digesters, alternative feed facilities, and renewable energy. We discuss how such an approach can help catalyze the inflow of investment dollars to achieve the highest impact agricultural climate solutions, enable action at the producer level by spreading the risk of change along the supply chain, facilitate small farm cooperation to achieve necessary scale, and improve targeting and transparency of green bonds for farmers, service providers, and bond issuers alike.