Exploiting the unique “twin” structure of German government green and conventional securities, we use a dynamic term structure model to estimate a frictionless

sovereign risk-free greenium, distinct from the yield spread between the green security

and its conventional twin (the green spread). The model purifies the green spread from

confounding and idiosyncratic factors unrelated to environmental concerns. While the

model-implied greenium exhibits a significant relation with proxies of shocks to climate concerns—and the green spread does not—the green spread correlates with stock

market prices and measures of flight-to-quality. We also estimate the greenium term

structure and expected green returns.