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Green Premium: How to Deal with One of the Largest Barrier toward Sustainability Breakthrough
- BRANDi
- 18 hours ago
- 2 min read
Studies from the government of the Canadian province of British Columbia reveal that an additional cost—sometimes even a 100% markup—consumers and businesses need to pay for sustainable alternatives can be a serious hurdle toward the sustainability movement. This phenomenon, called “Green Premium,” holds even now, when the demand for low-carbon solutions is rising. For instance, according to the US Department of Energy, Sustainable aviation fuel (SAF), whose demand increased by 20% in 2024 over 2023, can be up to four times more expensive than conventional jet fuel, making it difficult for airlines to utilize at scale and scope. Similarly, the same source shows that low-carbon steel and cement come with price premiums of 40-70% and 60-70% per ton, respectively, deterring widespread industry use. Nonetheless, according to a report from the World Economic Forum, “Net-Zero Industry Tracker, 2024 Edition” evolving industry standards are beginning to offer solutions to abate the deterring effects of Green Premium.
CURRENT SITUATION: INADEQUATE STANDARDS
The report shows that one of the primary challenges in scaling low-carbon products is the lack of clear and consistent standards for carbon thresholds and emissions tracking. Without unified industry-wide guidelines, businesses often face uncertainty in verifying and reporting emissions, limiting their ability to market low-emission goods confidently. Besides, the non-binding nature of many corporate sustainability commitments leads to weak demand signals. This, in turn, discourages their suppliers from investing in cleaner production methods. The effects are, thus, felt along the value chains.
MANAGING GREEN PREMIUM THROUGH POLICIES
Reducing the Green Premium requires systemic changes, including carbon pricing, regulatory clarity, and financial incentives for early adopters. The World Economic Forum report signals that policies such as the EU’s Carbon Border Adjustment Mechanism (CBAM), which aimed to level the playing field by imposing tariffs on high-emission imports, can also encourage businesses to invest in cleaner alternatives. This is possible as a result of subsidies and tax benefit schemes the mechanism offers. Additionally, from the business side, demand aggregation strategies—where industries collaborate to create bulk purchasing commitments—can help lower costs by achieving economies of scale. The shipping sector, for example, has seen progress with initiatives such as the Industrial Transition Accelerator, which promotes shared infrastructure and carbon measurement frameworks. Another example can be found in the First Movers Coalition, a group of international companies committing to purchasing low-carbon materials to establish strong demand commitments for green steel, aluminum, and other industrial products.
For low-carbon markets to reach their full potential, stakeholders across industries, governments, and financial institutions must align on a shared approach to cost reduction and adoption. This manifests in various forms, with the strongest being policy incentives and increased investment in clean technology. While the Green Premium remains a challenge, collaborative efforts can pave the way for a more sustainable and economically viable transition that works for all and for the world.
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