Carbon Premium: Is It There?
Charles A. Dice Center Working Paper No. 2022-06
59 Pages Posted: 28 Jul 2022 Last revised: 9 Dec 2022
Date Written: September 26, 2022
The carbon premium refers to the excess return associated with the carbon-brown firms and is the focus of several recent influential studies. After accounting for the data release lag and with value weighting, less carbon-intensive firms earn higher returns in the U.S., while there is no excess return associated with total carbon emissions and emission growth. Internationally, the carbon return is zero on average and is lower in countries with strong climate taste shocks during the transition, such as sustainable flows and climate concerns. After controlling for the in-sample shocks, the carbon return is higher in countries more exposed to climate change.
Keywords: carbon emissions, climate change, transition risk, predictability, stock returns
JEL Classification: G10, G12, G15
Suggested Citation: Suggested Citation