Finance and Carbon Emissions

74 Pages Posted: 7 Oct 2019 Last revised: 2 Dec 2019

See all articles by Ralph De Haas

Ralph De Haas

European Bank for Reconstruction and Development; Centre for Economic Policy Research (CEPR); KU Leuven

Alexander A. Popov

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2019


We study the relation between financial structure and carbon emissions in a large panel of countries and industries. For given levels of

economic and financial development, emissions per capita are lower in economies that are relatively more equity-funded. Industry-level analysis reveals two channels. First, deeper stock markets reallocate investment towards cleaner industries and, second, they allow carbon-intensive industries to produce green patents and reduce their energy intensity. Only one-tenth of these industry-level reductions in domestic emissions is offset by increased carbon embedded in imports. A firm-level analysis of an exogenous shock to the cost of equity in Belgium confirms our findings.

Keywords: Carbon Emissions, Financial Development, Financial structure, Innovation

JEL Classification: G10, O4, Q5

Suggested Citation

De Haas, Ralph and Popov, Alexander A., Finance and Carbon Emissions (September 2019). CEPR Discussion Paper No. DP14012, Available at SSRN:

Ralph De Haas (Contact Author)

European Bank for Reconstruction and Development ( email )

One Exchange Square
London, EC2A 2JN
United Kingdom


Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

KU Leuven

Naamsestraat 69
Leuven, B-3000

Alexander A. Popov

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

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