Carbon-Tax-Adjusted Value

23 Pages Posted: 3 Dec 2021

See all articles by David Blitz

David Blitz

Robeco Quantitative Investments

Tobias Hoogteijling

Robeco Quantitative Investments

Date Written: November 30, 2021


We examine the effects of incorporating a potential tax on carbon emissions into a value investment strategy. We show that in a portfolio optimization problem, a carbon tax at the stock level is mathematically equivalent to a carbon constraint at the portfolio level. Using this insight we derive a value-carbon efficient frontier that reflects the trade-off between a high value exposure and a low carbon footprint. Empirically we find that carbon taxes up to $100, corresponding to a portfolio carbon footprint reduction of about 50%, have little effect on the characteristics and the performance of the long side of a value strategy. Much more aggressive footprint reduction levels seem unreasonable, as they correspond to extremely high carbon tax levels and performance starts to decay.

Keywords: Carbon tax, efficient frontier, value investing, value premium, decarbonization, sustainable investing, ESG

JEL Classification: G11, G12, G14

Suggested Citation

Blitz, David and Hoogteijling, Tobias, Carbon-Tax-Adjusted Value (November 30, 2021). Available at SSRN: or

David Blitz (Contact Author)

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3014 DA

Tobias Hoogteijling

Robeco Quantitative Investments ( email )

Rotterdam, 3011 AG
0655685700 (Phone)

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