Climate-Related Innovations: Economic Value and Risk Mitigation

Abstract

Through a novel design to link climate risk and the U.S. firm patents related to climate change mitigation technologies (CCMTs), we find that CCMT innovations generate significant economic value and are effective in mitigating firms’ carbon risk, especially when such risk is high and investor sentiment is more negative. We also find that adoption of a new patent classification scheme has promoted more CCMT innovations in the United States. However, our results show mixed evidence on firms’ carbon risk and their CCMT innovation activities, which suggests that the government can play a more prominent role in promoting activities in CCMTs.

Keywords: Climate change; Climate change mitigation technologies, Patents; Asset pricing, Risk

JEL Classification: G10; G11; Q54; Q55