Financing Emissions

69 Pages Posted: 31 Mar 2023 Last revised: 6 Feb 2024

See all articles by Dominique C. Badoer

Dominique C. Badoer

University of Illinois at Chicago - Department of Finance

Evan Dudley

Queen's University - Smith School of Business

Date Written: December 14, 2023

Abstract

We examine how investors' expectations about the timing of transition risk related to climate change affect the debt financing costs of greenhouse gas emitting firms in the corporate bond market. We find that yield-spreads increase less with maturity for firms more exposed to transition risk and argue that this finding reflects the early resolution of transition risk for high-exposure firms. To further understand this channel, we use EPA information on greenhouse gas abatement potential to compare firms with abatable and difficult-to-abate emissions. Our results imply that investors expect transition risks in some industries to be resolved in the short term.

Keywords: carbon emissions, transition risk, corporate debt, climate finance

JEL Classification: G12, G32

Suggested Citation

Badoer, Dominique C. and Dudley, Evan, Financing Emissions (December 14, 2023). Available at SSRN: https://ssrn.com/abstract=4395971 or http://dx.doi.org/10.2139/ssrn.4395971

Dominique C. Badoer (Contact Author)

University of Illinois at Chicago - Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States

Evan Dudley

Queen's University - Smith School of Business ( email )

Goodes Hall
Kingston, Ontario K7L 3N6
Canada

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