Green premium refers to the additional price paid for environmentally friendly or sustainable products, services, or investments compared to conventional alternatives. In energy markets, green premiums apply to renewable energy, low-carbon fuels, and carbon-neutral products. These premiums reflect consumer preferences, regulatory requirements, and corporate sustainability commitments.

Green premiums vary based on supply-demand dynamics for sustainable alternatives, regulatory policies, and market development stages. As sustainable technologies mature and scale, green premiums typically decrease. Understanding green premium trends helps traders identify investment opportunities in environmental markets and assess the economic viability of sustainable alternatives.

Real-world example: Sustainable Aviation Fuel (SAF) trades at a $50 per barrel green premium over conventional jet fuel, reflecting airline sustainability commitments and limited SAF production capacity relative to growing demand.