Working Paper: CEPR ID: DP18289
Authors: Philippe Loyson; Rianne Luijendijk; Sweder van Wijnbergen
Abstract: We assess whether climate transition risk is priced in Europe's equity market by analysing relative equity returns of high versus low CO2-emitting firms. We use a panel data set covering firm-specific carbon emissions of 1,555 European companies over the period 2005-2019. We add to the existing literature by addressing problems in carbon data and by using various econometric methods ranging from panel data analysis to the SCM. Fama-French style panel regressions at both the individual firm level as well as portfolio level suggest that carbon intensity is negatively related to stock returns. Treatment effect models, however, provide some evidence for increased pricing of climate transition risk after the Paris Agreement.
Keywords: climate change; carbon emissions; intensity; Paris Agreement; transition risk; premia
JEL Codes: G12; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| carbon emissions (Q54) | total returns (G12) |
| carbon intensity (L94) | stock returns (G12) |
| Paris Agreement (F53) | carbon premium (Q58) |
| carbon intensity (L94) | carbon premium (Q58) |