DP14012 Finance and Carbon Emissions
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.