Sustainable Finance and Carbon Pricing in Bioenergy Transition: A Contingent-Claim Approach to Renewable Energy Investment Under Land Constraints

Biomass is widely recognized as a critical renewable energy source for supporting global decarbonization and energy diversification. However, the financial viability of bioenergy investments depends heavily on how climate policies and sustainable finance mechanisms interact under environmental uncertainty. This study develops a land-constrained bioenergy valuation model to examine the joint effects of carbon pricing, climate finance arrangements, and land-use regulations on the economic sustainability of biomass producers. Environmental and financial policies enter the framework through carbon costs, land-use constraints, and financial intermediation conditions, thereby linking climate regulation to firm-level capital performance. Using a contingent-claim framework, producer equity and financing risks are evaluated to capture the complex effects of market asset volatility on energy investment incentives. The framework is evaluated through a literature-informed baseline calibration and comparative-static numerical analysis; accordingly, the reported results are model-implied comparative-static mechanisms designed to evaluate bioenergy project viability under policy and market uncertainty. The numerical analysis employs a non-region-specific representative benchmark and is intended to identify structural and comparative-static mechanisms rather than to forecast outcomes for a particular geographical market. The results show that higher carbon prices reduce producer viability by increasing operating costs, although this financial strain is partially mitigated by the option-like nature of equity under higher asset volatility. In contrast, improvements in agronomic productivity, greater land availability, and higher biomass market prices enhance investment returns and financing conditions. The findings further indicate that climate policies shape bioenergy deployment not only through physical production costs but also through financial transmission channels and risk-sharing mechanisms. The study contributes to the energy policy and climate finance literature by integrating carbon pricing, land governance, and financial options within a unified analytical framework. The results highlight the importance of policy coordination between renewable energy incentives, sustainable finance management, and carbon regulation to mitigate investment risks in the bioenergy sector.