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Finance and carbon emissions

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  • De Haas, Ralph
  • Popov, Alexander

Abstract

We study the relation between the structure of financial systems and carbon emissions in a large panel of countries and industries over the period 1990-2013. We find that for given levels of economic and financial development and environmental regulation, CO2 emissions per capita are lower in economies that are relatively more equity-funded. Industry-level analysis reveals two distinct channels. First, stock markets reallocate investment towards less polluting sectors. Second, they also push carbon-intensive sectors to develop and implement greener technologies. In line with this second effect, we show that carbon-intensive sectors produce more green patents as stock markets deepen. We also document an increase in carbon emissions associated with the production of imported goods equal to around one-tenth of the reduction in domestic carbon emissions. JEL Classification: G10, O4, Q5

Suggested Citation

  • De Haas, Ralph & Popov, Alexander, 2019. "Finance and carbon emissions," Working Paper Series 2318, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20192318
    Note: 861282
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    More about this item

    Keywords

    carbon emissions; financial development; financial structure; innovation;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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