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Do carbon prices affect stock prices?

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  • Patrick Bolton
  • Adrian Lam
  • Mirabelle Muûls

Abstract

We explore how carbon pricing affects corporate financial performance during Phase 3 of the European Union Emissions Trading Scheme (EU ETS). We find that the relationship between carbon prices and stock prices depends critically on the proportion of verified emissions covered by freely allocated ETS allowances: For firms with a greater shortfall in emissions allowances (a greater permit coverage), an increase in daily carbon prices is associated with a decrease (increase) in contemporaneous stock prices. We provide additional evidence that firms with a significant permit shortfall reduce verified emissions in the EU, with no apparent carbon‐leakage.

Suggested Citation

  • Patrick Bolton & Adrian Lam & Mirabelle Muûls, 2026. "Do carbon prices affect stock prices?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 49(2), pages 631-665, June.
    • Handle: RePEc:bla:jfnres:v:49:y:2026:i:2:p:631-665
    DOI: 10.1111/jfir.12472
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