Author(s):	Ralph de Haas, Alexander Popov
Publication Date:	September 2019
Date Revised:	November 2019
Keyword(s):	Carbon Emissions, Financial Development, Financial structure, Innovation
JEL(s):	G10, O4, Q5
Programme Areas:	Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=14012

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.