The price of carbon risk: Evidence from the Kyoto Protocol ratification

We examine the price of carbon risk using the Kyoto Protocol ratification (hereafter KPR) committed by the Australian government in December 2007. We find that, in the post-KPR period, firms with high carbon emissions experience a substantial increase in the costs of debt and equity relative to those firms with a lower carbon footprint. Moreover, after the KPR, carbon emitters are less likely to be financed by major banks and more likely to borrow from new lenders. When conducting seasoned equity offerings, carbon emitters are more willing to use underwriting services rather than rights offerings.