IDEAS home Printed from https://ideas.repec.org/a/bla/jfinan/v81y2026i2p561-602.html

Carbon Pricing versus Green Finance

Author

Listed:
  • LASSE HEJE PEDERSEN

Abstract

Green finance—including environmental, social, and governance investing and sustainable finance regulations—is widespread, but can it substitute for carbon pricing in fighting climate change? In a unified model, I show that (i) when carbon prices reflect the social cost of carbon, green finance should not be used; (ii) when carbon prices are too low, green finance can implement the social optimum if each firm's cost of capital can be set to its sustainable discount rate, which increases with the ratio of carbon emissions to firm value. I provide calibrations, analyze stranded assets, and present implementations through subsidies or preferential financing for green firms.

Suggested Citation

  • Lasse Heje Pedersen, 2026. "Carbon Pricing versus Green Finance," Journal of Finance, American Finance Association, vol. 81(2), pages 561-602, April.
    • Handle: RePEc:bla:jfinan:v:81:y:2026:i:2:p:561-602
    DOI: 10.1111/jofi.70022
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jofi.70022
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jofi.70022?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jfinan:v:81:y:2026:i:2:p:561-602. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/afaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.