Abstract

This study explores the impact of green innovation on differential financial market repricing between fossil-fuel (brown) and renewable (green) energy production companies. Focusing on a period marked by low green patent activity, this paper implements local projection methods to examine the impact of green patents on exchange-traded funds (ETFs) for energy companies from 2005 to 2020. Using an economically meaningful innovation index to measure the quality of patents, the analysis shows that increases in the economic value of green patents spurred an aggregate shift in relative equity valuations from brown to green energy companies only after the Paris Agreement. This finding emphasizes the relevance of policy credibility and high-value technical breakthroughs in energy transitions and has important implications for climate policies and green energy market financial revaluation.