Discussion Paper Details

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Title: Finance and Carbon Emissions

Author(s): Ralph de Haas and Alexander Popov

Publication Date: September 2019

Keyword(s): Carbon Emissions, Financial Development, Financial structure and Innovation

Programme Area(s): Financial Economics

Abstract: We study the relation between financial structure and carbon emissions in a large panel of countries and industries. For given levels of economic and financial development, emissions per capita are lower in economies that are relatively more equity-funded. Industry-level analysis reveals two channels. First, deeper stock markets reallocate investment towards cleaner industries and, second, they allow carbon-intensive industries to produce green patents and reduce their energy intensity. Only one-tenth of these industry-level reductions in domestic emissions is offset by increased carbon embedded in imports. A firm-level analysis of an exogenous shock to the cost of equity in Belgium confirms our findings.

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Bibliographic Reference

de Haas, R and Popov, A. 2019. 'Finance and Carbon Emissions'. London, Centre for Economic Policy Research.